* Nikkei falls in line with firming yen
* Sharp drops, source says iPad panel production slashed
By Sophie Knight
TOKYO, Jan 21 The Nikkei share average slipped
on Monday morning as the Bank of Japan began a two-day policy
meeting, stepping back somewhat after last week's 32-month high
on expectations the central bank will take aggressive
A bounce in the yen gave impetus to profit-taking in stocks
and weighed on several exporters.
"It seems clear that the exchange rate is continuing to
drive the market today," said Hiroyuki Fukunaga, chief executive
"But the Nikkei Mothers (index) is strong, which shows that
investors are buying stocks that are relatively immune to the
movements of the yen," he said.
The Tokyo Mothers index which stands for "market of
the high-growth and emerging stocks", rose 4.4 percent to
505.58, surpassing the 500-level for the first time since the
March 2011 earthquake and tsunami.
But heavyweights reversed from their sharp gains on Friday,
when the benchmark surged 2.9 percent, its biggest one-day gain
in nearly two years, as investors adjusted positions to price in
news that the central bank was preparing to approve major easing
steps and a new 2 percent inflation target.
Fast Retailing Co Ltd, the operator of Uniqlo
stores, lost 2.4 percent after gaining 3 percent in the previous
session, while the insurance sector dropped 1.3
percent after jumping 5.5 percent on Friday.
The Nikkei fell 0.9 percent to 10.820.59 by the
midday break, moving further away from a 32-month high of
10,952.31 hit last Tuesday.
"I think everyone is in agreement that the direction the
(government and the central bank) are going in is good, but we
don't know whether they will actually be able to achieve their
aims," said Yuuki Sakurai, CEO and president of Fukoku Capital
Some investors are concerned that the Nikkei's recent rally
- around 26 percent in two months since then-incoming Prime
Minister Shinzo Abe began to call for aggressive easing - has
been too steep, leaving the market ripe for a correction.
"Results are a long way off. We're in a grace period thanks
to little bad news out of Europe and a temporary respite from
the fiscal cliff, but when things flare up again the yen is
likely to bought as a safe haven and will strengthen," Sakurai
Exporters such as automakers have seen their share prices
shoot up over the past two months, driving the Nikkei's rally,
as a weaker yen promises higher overseas revenue when
repatriated, making them more competitive against foreign firms.
Toyota Motor Corp's share price, for example, has
risen 37 percent in that two months. Eiji Kinouchi, chief
technical analyst at Daiwa Securities, recommends buying
automaker shares on the dip if the market falls after the BOJ
meeting, as well as those of banks and real estate.
Some investors are concerned that a weaker yen could cause
friction with U.S. manufacturers, as well as hurting Japanese
importers and even manufacturers if it causes energy prices to
The electric and gas sector dropped 1 percent on
Monday morning and was the second worst-performing subindex
following an International Energy Agency report warning about
high Chinese demand and lower OPEC supplies, in addition to an
Algerian hostage crisis that may also hamper production.
The broader Topix index edged down 0.3 percent to
Sharp Corp lost 3.2 percent after two sources told
Reuters that the company has nearly halted production of
9.7-inch screens for Apple Inc's iPad, possibly as
demand shifts to its smaller iPad mini.
But Seiko Epson Corp advanced 5.6 percent after JP
Morgan upgraded the printer maker to "overweight" from "neutral"
and hiked its target price to 1,600 yen from 700 yen, saying its
global market share had increased.
"We forecast a strong euro and a better product mix to drive
the first top-line growth in eight years in FY2013, and think
forward profits will also be favourably positioned to exceed our
estimates," JP Morgan analyst Hisashi Moriyama wrote in a note.