Nikkei scales 21-month high, heads for best yearly gain since 2005

Thu Dec 27, 2012 2:53am GMT

* Nikkei rises 1.4 pct, Topix up 1.3 pct
    * Nikkei up 23 percent this year

    By Dominic Lau
    TOKYO, Dec 27 (Reuters) - The Nikkei share average climbed
1.4 percent to a 21-month high on Thursday, led by exporters, as
the new Japanese prime minister's vow to battle deflation and a
strong currency weighed on the yen.
    The Nikkei advanced 140.13 points to 10,370.49 by
the midday break, rising for the third consecutive session and
taking the index deeper into "overbought" territory, with its
14-day relative strength index at 78.5, far above 70 which is
considered overbought and often indicates an imminent pullback.
    The benchmark has risen 19.8 percent over the past six
weeks, taking the year-to-date gain for the Nikkei to 22.7
percent, outpacing a 12.9 percent rise in the U.S. S&P 500
 and a 14.7 percent gain in the pan-European STOXX Europe
600.
    It is on track to log its best yearly gain since 2005.
    "People are back in the office today...and putting on some
positions based on what we saw after the cabinet appointment and
LDP policy decision," a dealer at a foreign brokerage said,
referring to the ruling party.
    "It's going to be interesting to see what's going to happen
in the market in the afternoon session and tomorrow because
Tokyo closes pretty much for the entirety of next week. There is
a lot of headline risk that could happen...I would not be
surprised to see some profit-taking," the dealer said.
    Finance Minister Taro Aso said Prime Minister Shinzo Abe has
ordered him to compile a stimulus package without sticking to
the previous government's cap on new bond issues, signalling a
more aggressive policy to kick-start the ailing economy.
    Exporters benefiting from the yen's weakness included Toyota
Motor Corp, Honda Motor Co, TDK Corp 
and Panasonic Corp, all up between 1.3 and 2.9 percent.
    The yen hit a more than two-year low of 85.835 yen to the
dollar. A weaker yen helps lift exporters' overseas earnings
when repatriated, thereby improving their competitiveness,
particularly against South Korean and Chinese rivals.
    Helped by the yen weakness, the pace of deterioration in
Japanese companies' earnings outlook has slowed further in
December.
    Their one-month earnings momentum - analysts' earnings
upgrades minus downgrades as a total of estimates - stood at
-7.2 percent, versus -10.9 percent in November and -12.2 percent
in December.
    Banks' one-month earnings momentum improved to 14
percent from 5.3 percent last month. The sector was up 1.7
percent on Thursday morning.
Insurers also rose, up 1.7 percent, as the rally in
stocks boosted the value of their equity holdings.
    The broader Topix gained 1.3 percent to 858.86 in
active trade on Thursday morning, with volume slightly above its
full daily average of the past 90 trading days.
    Japanese equities carry a 12-month forward price-to-earnings
ratio of 12.6, slightly cheaper than the S&P 500's 12.8, but
more expensive than STOXX Europe 600's 11.5, data from Thomson
Reuters Datastream showed.
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