January 15, 2020 / 7:15 AM / 9 days ago

Japan stocks slip as tariff comments dent trade deal optimism

* Nikkei snaps 3-day winning streak on profit-taking

* U.S. comments on China tariff spark caution on deal

By Hideyuki Sano

TOKYO, Jan 15 (Reuters) - Japanese shares dropped on Wednesday, snapping a three-session winning streak after a top U.S. trade official said current tariffs on Chinese goods would stay for now, prompting investors to lock in profits from recent gains.

The Nikkei share average fell 0.45% to 23,916.58, retreating from a four-week high of 24,060 touched the previous day, while the broader Topix lost 0.54% to 1,731.06.

U.S. Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer said there was no agreement in place with China on further tariff reductions, taking the shine out of market enthusiasm about the upcoming trade deal.

The details of the deal are slated to be unveiled at 11:30 a.m. (1630GMT) when the two countries officially sign off on it.

Investors took profits from recent gainers such as Sony , SoftBank and Keyence, which fell 1.9%, 1.4% and 1.2% respectively.

The Nikkei has rallied nearly 20% from its August low on hopes of a truce in the tariff dispute.

But upcoming earnings announcements pose a hurdle as the rally has been driven by a rise in P/E, rather than actual earnings.

The Topix now trades at 14 times over the expected earnings, the highest multiple in almost two years, compared to around 12 just a few months ago.

Expected earnings have declined a little during this period, although they have shown some signs of bottoming out.

“I think the market has already priced in a pretty good scenario. I doubt there will be much upside even if earnings come out pretty strong,” said Takuya Hozumi, global investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

Toho fell 5.7% to become the top decliner on the Nikkei after the film and entertainment company’s earnings in the three months to January fell short of investors’ strong expectations.

Ryohin Keikaku fell 3.2% in extremely heavy trade for a second day after the operator of Muji brand shops cut its earnings forecast due to a slump in South Korea and Hong Kong businesses.

More Japanese companies will announce earnings next month.

Square Enix Holdings dropped 4.9% after the game company announced a delay in the launch of a new game.

On the other hand, Aeon rose 1.9%, extending gains after the retailer announced the first change in its top leadership in 23 years.

Olympus rose 2.3% to a record high amid bullish view on its medical equipment business.

Reporting by Hideyuki Sano; Editing by Subhranshu Sahu

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