* Nikkei hits 32-month closing high, Topix climbs 2.2 pct
* More upside expected in coming months - analyst
By Tomo Uetake
TOKYO, Jan 25 Japan's Nikkei average jumped 2.9
percent on Friday to log an 11th straight week of gains, its
longest such run since 1971, after a drop in the yen to a
2-1/2-year low against the dollar spurred exporters higher and
fuelled optimism about earnings.
The Nikkei 225 scored its biggest one-day gain in
nearly two years to end at 10,926.65, its highest close in 32
"The Nikkei surged because of a softer yen following
positive surprises in U.S. data, especially the jobless claims,"
said Hiroyuki Fukunaga, chief executive of Investrust.
The yen tumbled to 90.695 to the dollar on Friday after new
claims for U.S. jobless benefits dropped to a five-year low last
week, prompting investors to buy dollars.
A senior Japanese official also spurred the yen's decline by
saying the government had no problem with the dollar hitting 100
Japanese exporters, which benefit from a softer yen as it
increases the value of earnings repatriated from overseas and
boosts their international competitiveness, led the gains on
Sony Corp surged 8.5 percent, Toshiba Corp
jumped 5.3 percent and Fuji Heavy Industries climbed
Analysts have raised their profit forecasts for
currency-sensitive exporters and foreign investors ploughed $17
billion into the market in December, the biggest monthly inflow
Bank of America Merrill Lynch picked Japanese equities as
the only short-term "buy" among equities worldwide, saying that
the government's aggressive monetary easing and economic
policies would help to spur gains.
"The great rotation has begun and the big picture is
transitioning from deflation and deleveraging to a normalisation
of growth, rates and risk appetite," Merrill said in a note.
The brokerage also said that recent bullishness has made the
market ripe for a correction, but that if individual investors
continue to pile in and push up prices it would risk a steeper
fall in the spring.
Trading volume has also risen with the stepped-up buying by
individual investors, after regulations on margin trading were
relaxed at the beginning of January to allow them to use the
same collateral to back multiple margin trades in the same day.
"It's led to much higher volatility, which simply means that
when the market falls it's that much steeper or when it rises it
can also be dramatic," said a senior hedge fund manager.
The broader Topix climbed 2.2 percent to 917.09 in
active trade, with the day's volume, at 3.34 billion shares,
recovering nearly to last week's daily average of 3.73 billion
shares after a largely lacklustre week.
The Nikkei has rallied 26 percent since mid-November on
expectations that Japan's new prime minister, Shinzo Abe, will
pursue bolder policies to tackle prolonged deflation in the
world's third-largest economy.
The market's steep climb stalled earlier this week after a
policy move by the Bank of Japan disappointed investors who had
expected far more aggressive easing measures.
Some analysts said investors are chasing the market higher,
as the underlying mood remains bullish on expectations that
company earnings will exceed forecasts that were based on
conservative foreign exchange assumptions.
"We can look forward to more good news from both the
domestic market and the global market for the coming months,"
said Nobuhiko Kuramochi, a strategist at Mizuho Securities.
He said the Nikkei was likely to reach 11,150 if the yen
remains weaker than 90 to the dollar for a sustained period.
"Speaking from a currency-stock correlation point of view,
our research showed that the Nikkei's level was around 10,041
when the yen traded around 85 yen to the dollar," he said.
But others said this earnings season may not be as good as
some expect. Nidec Corp lost 1.7 percent after it
lowered its earning guidance.
"There may not be such significant improvement in companies'
topline data ... I expect that many will maintain their
conservative earnings outlook," Fukunaga of Investrust said.
"If the yen's weakness is the only good factor for a
company, there's not much incentive for investors to support a
P/E which is more than 18 times."