WK.31(1st - 5th August 2011)
1
Stocks made a positive start to the week in Tokyo trading after US President, Barack Obama, announced on Sunday that congressional leaders had reached a compromise on cutting the budget deficit and raising the federal debt ceiling to avert a catastrophic default. The plan must still be approved by majorities in both houses of Congress and the President urged US lawmakers to now “do the right thing” before Tuesday’s deadline. The Dollar immediately strengthened on foreign exchange markets, advancing towards the Y78 level and prompting investors to buy exporters. Consumer electronics and entertainment giant, Sony, added 0.7% and printer/copier and digital camera manufacturer, Canon, also gained 0.7%. Among automakers, Toyota was ahead 0.5%, and Honda climbed 1.5% before release of its latest quarterly earnings scheduled for later in the day. Industrial robot manufacturer, Fanuc, surged 4.6% on reports that it expects to make record profits for the six months to the end of September thanks to strong demand from China for its machine tools. Fuji Electric similarly leapt 4.4% on news that it has developed a device to measure radiation levels in fresh food in seconds, without the need to remove packaging. Japan has been plagued in recent weeks by instances of low level radioactive contamination from the accident at the Fukushima nuclear power plant entering the food chain, putting pressure on health and safety authorities to carry out more extensive checks to reassure the public. Banks, too, were bought. Mitsubishi UFJ, Japan’s top lender, jumped 4.1%, lifted by a tripling of quarterly net profits, while Sumitomo Mitsui Financial Group (SMFG) rose 2.9% and Mizuho Financial advanced 2.4%. Overall, the Nikkei average closed up 1.3% at 9,965. The broader Topix index added 1.2% to finish at 852. Trading volume was moderate with some 1.9 billion shares exchanging hands.
2
Japanese share prices gave up most of the previous day’s gains in trading in Tokyo on Tuesday. Figures released overnight showed that US manufacturing output grew at its slowest pace for two years in July, mirroring similarly weak performances in Europe and most of Asia, and heightening concerns about the health of the global economy. Nervous investors are now anxiously awaiting data on US non-farm payrolls scheduled to be unveiled on Friday. The Dollar fell back, threatening to dip below Y77 and prompting the Bank of Japan (BoJ) to prime markets for possible intervention through Yen selling and/or an easing of central bank monetary policy. Among automakers, Toyota slipped 0.3% ahead of release of its latest quarterly earnings scheduled for after the close and Honda slid 0.5% despite revising upwards its full year projection to net profits of Y230 billion on revenues of Y8,700 billion thanks to improvements in supply chain conditions. Honda did also report that earnings for the three months to the end of June plunged by 88% to just Y32 billion but this was actually a surprisingly good result considering the huge impact that damage to plants and factories from the devastating March 11 earthquake and tsunami had on production. Among technology stocks, semiconductor-related issues were out of favour after Tokyo Electron, a world leading supplier of chip-making equipment, cut its annual outlook by half. Tokyo Electron dropped 6.2% and rival, Nippon Screen Manufacturing, similarly tumbled 6.2%. Nomura Securities downgraded its rating on both companies, citing reduced investment by semiconductor manufacturers because of slowing demand for chips used in PCs, smart-phones, and tablet computers. Elsewhere, Kirin Holdings was off by 0.3% but was supported by news that it will spend US$2.6 billion to take a controlling interest in Brazilian beer and soft drinks producer, Schincariol, in a move to expand its share of the fast-growing South American market. The Nikkei average closed down 1.2% at 9,845 while the Topix index declined 0.9% to finish at 844. Volume was thin with just 1.6 billion shares exchanging hands.
3
Japanese stocks suffered their biggest daily fall since the immediate aftermath of the March 11 earthquake and tsunami in trading in Tokyo on Wednesday. The trigger was US consumer spending data released overnight, which declined in June for the first time in nearly two years, reinforcing the signs of economic slowdown highlighted the previous day by weak US manufacturing figures. Sony slumped 2.5% and fellow consumer electronics giant, Panasonic, dropped 2.9%. Canon slid 1.7% and Renesas Electronics, a major supplier of chips and other key system controllers to the automotive industry, tumbled 5.5% after its annual outlook failed to meet analysts’ expectations. Toyota, the world’s largest automaker, slipped 1.3% following its announcement that net profits plunged 99% to just over Y1 billion on revenues down 29% to Y3,440 billion in the three months to the end of June as output was virtually halted because of the damage done to factories and supply chains by the Great East Japan Earthquake. Toyota also complained about the strong Yen but still managed to revise upwards its full-year forecast to earnings of Y390 billion on sales of Y19,000 billion thanks to a faster than expected recovery in vehicle production. Resource and commodity-related issues also declined. Trading house, Mitsui & Company, shed 2.4% and Inpex Corporation, Japan’s biggest oil and gas field developer, fell 2.5%. Banks fared no better. Mitsubishi UFJ slumped 2%, Sumitomo Mitsui Financial Group (SMFG) dropped 2.1% and Mizuho Financial was off by 1.6%. Overall, the Nikkei average closed down 2.1% at 9,637. The more comprehensive Topix index lost 2% to finish at 827. Trading volume was moderate with just over 1.8 billion shares exchanging hands.
4
Share prices steadied in trading in Tokyo on Thursday after the Bank of Japan (BoJ) intervened to stem the appreciation of the Yen. The BoJ pledged to boost the size of its Y10 trillion asset buying programme by another Y5 trillion and also increased by Y5 trillion a Y30 trillion programme offering cheap, fixed-rate funds via its market operation. As a result, the Dollar climbed from below Y77 to more than Y79 and exporters gained. Canon added 1.9%, Toyota advanced 0.6%, and Tokyo Electron climbed 1.7%. Video games software developer, Konami, leapt 5.1% after saying that net profits tripled for the three months to the end of June. However, with the fiscal woes of both the US and Euro-zone economies still fundamentally unresolved, many investors remain cautious and fear that the impact of any solo intervention by Japan may prove both limited and temporary. Elsewhere, the focus was on reports of a possible merger between Hitachi, Japan’s biggest industrial electronics conglomerate, and Mitsubishi Heavy Industries (MHI), the country’s leading heavy machinery manufacturer. Such a merger would be one of the largest ever in Japan and would create a behemoth with more than Y12 trillion (US$150 billion) in combined annual sales revenues. Hitachi rose 1.7% and MHI jumped 3.4%. Related group companies also benefited. Hitachi Construction Machinery advanced 1.9% and Mitsubishi Motors added 4.1%. But some analysts are skeptical that such a merger could really succeed as it would mean creating a new entity out of companies from different former “zaibatsu” or business groups, something that rarely happens and is seen as extremely difficult to achieve. The Nikkei average closed up 0.2% at 9,659 but the Topix index finished marginally lower at 826.
5
US stocks on Wall Street tumbled more than 4% overnight in the worst sell-off for two years after yields on Spanish and Italian bonds jumped, threatening two of the Euro-zone’s largest economies with the same fiscal squeeze that has already led to bail-outs for Greece, Ireland and Portugal. The worsening financial crisis in Europe compounded anxiety over a weak US economy and prompted panicked investors to dump equities and other riskier assets and flee to the relative safety of cash. Tokyo followed the US lead and Japanese share prices plunged from the start of trading on Friday. On foreign exchange markets, the Dollar gave back some of the previous day’s gains and slipped towards Y78 on safe-haven demand for the Yen, partially nullifying the effect of Thursday’s intervention by the Bank of Japan, which was reported to have reached a record Y4 trillion. Despite this, Japanese Finance Minister, Yoshihiko Noda, repeated that he is monitoring the situation closely, signaling a readiness to act again if necessary. However, his comments failed to reassure and exporters were sold heavily. Consumer electronics and entertainment giant, Sony, dropped 4.9% while, among automakers, Toyota fell 3.8%. Resource-related issues were also offloaded after oil prices declined up to 6% overnight on worries that developed economies could be heading for another recession. Inpex Corporation, Japan’s leading oil and gas field developer, plummeted 6.8% and rival, Japan Petroleum Exploration (JAPEX), sank 5.4%. Trading houses also suffered. Mitsubishi Corporation, Japan’s biggest commodities trader, slid 2.9% while Itochu shed 3.6% and Marubeni slumped 5.4%. Overall, the Nikkei average closed down 3.7% at a five-month low of 9,305 and lost 5.4% for the week. The broader Topix index tumbled 3.3% to finish at 809. Trading volume hit its highest level since May 13 with some 2.5 billion shares exchanging hands.
