Good news from abroad brought optimism back on Japanese stock exchanges. Wednesday’s session on Wall Street ended in green. All major US indices, including the Dow Jones Industrial Average, the S&P 500, and the Nasdaq ended the day with over 1.0% gains. It seems that despite the housing and mortgage markets crisis US, European, and Japanese economies are surviving. On the other hand, the Japanese economy is very sensitive to currency changes. That is why a weaker yen yesterday caused shares of big Japanese exporters to grow. The benchmark Japanese index, the Nikkei 225, gained 0.9% to 16,153.82.
The improving mood and declining risk aversion of investors caused the yen to weaken. When optimism is back on the markets, investors come back to carry trade transactions – borrowing money in a currency with a lower yield and investing it in financial instruments with higher yields. Such movements caused the USDJPY to rally from 113.93 in the morning all the way to 116.19 late in the afternoon. A weaker yen increases the value of Japanese exporters' dollar-denominated sales when converted back into local currency.
Shares of Japanese exporters climbed. Sony Corporation, the maker of the Playstation video-game console, gained 1.2% to 5,290 yen. Nintendo, the producer of the Wii console, rose 2.5% to 53,300. Isuzu Motors, the third-biggest carmaker in Japan, rallied 2.3% to 612 yen. Companies from the technology sector gained after positive outlooks for future profits. The main reason was that Seagate, the largest maker of hard-drives in the world, increased its forecast for the first quarter by 63% to 57 cents per share. Japanese companies that deliver motors to hard drives advanced following those news. Minebea gained 1.9% to 662 yen while Nidec rose 4.0% to 7,980 yen.
Macroeconomic reports from the US affected Japanese companies. Crude oil inventories in the US declined by 3.5 million barrels causing prices of Brent oil to jump from $71.18 to $72.23 per barrel. Following the report, Nippon Oil Corporation, the biggest oil refiner in Japan, gained 4.3% to 937 yen. Mitsubishi Corporation, a trading company that derives most of its sales from crude and industrial fuel, rallied 3.7% to 3,080 yen. Declining retail sales (2.2% decline against a 0.8% forecasted decrease) in Japan caused shares of chain stores to lose value. Mitsukoshi, department store operator, lost 2.4% to 521 yen while Fast Retailing, which operates clothing store chains, declined 3.1% to 6,670 yen.
The Japanese economy remains strong but is affected by swings in its currency. That is why investors will pay close attention to today’s macroeconomic publications including the unemployment rate (Expected July: 3.7%; Prior: 3.7%), All Household Spending (Expected July: +0.2%; Prior: +0.1% Y/Y), Core CPI (Expected July: -0.1% Prior: -0.1% Y/Y), Manufacturing PMI (Expected: 50.0; Prior: 49.0), and Industrial Production (Expected July: -0.4%; Prior: +1.3% M/M). Investors are anxiously waiting for September 19th, when the Bank of Japan will announce its decision regarding interest rates. The decision will probably be influenced by a day’s earlier announcement by the Fed, which on September 18th will report the level of interest rates in the US.
Adam Narczewski  |
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