Nikkei drops to 3-week closing low as BOJ action disappoints

Wed Jan 23, 2013 7:20am GMT

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* Nikkei down 2.1 pct, Topix off 1.5 pct
    * Disappointment at BOJ's 'hands off' for now - analyst
    * Cyclicals, financials and exporters lead decline
    * Some see market falling as low as 10,355

    By Tomo Uetake
    TOKYO, Jan 23 (Reuters) - The Nikkei average fell a third
straight day, reaching a three-week closing low on Wednesday
after the Bank of Japan's easing steps fell short of
expectations, triggering profit-taking in shares bought in
anticipation of the central bank decision.
    Shippers, steelmakers, securities and insurance companies
dropped , along with exporters, as the Japanese currency firmed
by nearly one yen to 88.33 yen against the dollar from Tuesday's
market close of 89.28 yen.
    "The big event is over now. Investors are shifting their
focus to corporate earnings and the U.S. economy, so they'll be
cherry-picking individual stocks," said Naoki Fujiwara, chief
fund manager at Shinkin Asset Management.
    The Nikkei dropped 2.1 percent to 10,486.99, logging
its biggest one-day percentage fall in a week. Wednesday's
retreat took the index further from its 32-month high of
10,952.31 on Jan. 15.
    Analysts said that investors were disappointed that there
could be no action this year after the central bank on Tuesday
pledged open-ended asset purchases starting from 2014 and set a
2 percent inflation target.
    "The central bank is basically announcing what it plans to
do next year while it says it will stay 'hands off' for now. Can
the market approve that? Of course not," said Norihiro Fujito, a
senior investment strategist at Mitsubishi UFJ Morgan Stanley
Securities. 
    He added that as soon as the BOJ announcement was out, the
securities firm started receiving calls from European investors
who were awake early and asking it to prepare to sell stocks and
buy the yen.
    But many market players said a sell-off should be limited
because investors are positioned for further gains in the stock
market as most expect BOJ Governor Masaaki Shirakawa, whose term
ends in April, to be replaced by someone whose stance on
aggressive policy easing matches Prime Minister Shinzo Abe's. 
    Abe has made clear that he wants a BOJ governor who shares
his push to reflate the economy with a hyper-easy monetary
policy combined with big fiscal spending.
    Before the BOJ meeting, the Nikkei had gained around 25
percent since mid-November, when then-incoming leader Abe began
calling for a softer yen and easier monetary policy.
    On Wednesday, the sea transport sub-index was the
top sector loser, dropping 5 percent. The securities sector
 lost 4.3 percent while the iron and steel sector
 fell 3.3 percent.
    Exporters, whose overseas earnings increase when the yen is
soft, succumbed to profit-taking, with Mazda Motor Corp 
falling 3.7 percent, Nikon Corp dropping 3 percent and
Nissan Motor Co Ltd shedding 2.8 percent.
    
    MARKET STILL OVERBOUGHT
    Market observers also noted that a correction is natural and
should cool down the "overbought" market.
    "Some investors have been waiting for the timing to take
profits, as they have chased the market higher," said Hiroichi
Nishi, assistant general manager at SMBC Nikko Securities.
    Some technical charts show that the stock market is
'overbought", including the toraku ratio, or up-down ratio, used
for the first section of the Tokyo Stock Exchange, which was at
139.5. The ratio is calculated by dividing the 25-day moving
average of stocks that gained by the 25-day average of those
that fell. A level above 120 signals an overheated market.
    They added that a correction could pull down the market to
around its 25-day moving average of about 10,355, or 1.3 percent
below Wednesday's close.    
    Among Wednesday's losers, TDK Corp fell 4.2 percent
to a three-week closing low after the Nikkei business daily said
the hard-disk drive and electronic parts maker was expected to
report a 30 percent fall in operating profit for
October-December due to weak demand for smartphone parts.
    The broader Topix dropped 1.5 percent to 887.79 in
relatively thin trade, with 3.38 billion shares changing hands, 
slightly lower trading volume than last week's daily average of
3.73 billion shares.
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