Tuesday, October 8, 2013
STOCK FOCUS: Yen Rise Won't Hurt Japan Stocks Much
TOKYO (NQN)--The Nikkei Stock Average has been recently trading lower as many investors shun risk due to the uncertain fiscal outlook in the U.S.
The dollar briefly fell to the mid-96 yen range Tuesday, its lowest level in about two months, continuing its gradual decline against the yen and pushing Japanese stocks lower.
Investors are now wondering what effect foreign exchange rates will have on Japanese stocks.
Seiichi Miura, a strategist at Mitsubishi UFJ Morgan Stanley Securities Co., says demand for the low-risk yen is growing as investors look for a safe haven ahead of the Oct. 17 deadline for raising the U.S. debt ceiling. Although the dollar's slide to the 96-yen range may not be cause for alarm, a drop below 95 yen will increase downward pressure on exporter shares, which are highly sensitive to changes in exchange rates.
Miura says given that the Bank of Japan's September "tankan" survey of business sentiment showed large manufacturers predicting an average exchange rate of 94.45 yen to the dollar, there are some companies assuming that rates will fall to 95 yen to the dollar.
According to Miura, the Nikkei average will likely continue to fall until the Oct. 17 deadline because the U.S. Congress and the White House are deadlocked over the debt ceiling and the U.S. government shutdown. However, he predicts that solid earnings by Japanese companies will underpin the stock market. Automakers' earnings are expected to beat initial forecasts, he says. On Tuesday, shares in Fuji Heavy Industries Ltd. (7270) bucked the downtrend in Tokyo stocks. Miura says this is an example of how expectations for solid earnings will support the stock market.
Tetsuo Seshimo, portfolio manager at Saison Asset Management Co., says forex traders are becoming more risk-averse, as there has been no progress in the U.S. fiscal debate. Also, the strengthening of the yen this month against the dollar, the euro and other currencies has caused declines in Japanese stocks. Fiscal debates in the U.S. have dragged on longer than most observers expected, he says. Seshimo expects Congress to reach an agreement by the Oct. 17 deadline for raising upper limit of U.S. government bonds and avoid a U.S. default. But if the debate goes to the last minute, anxiety will only grow, he adds.
Still, Seshimo predicts that the Nikkei average will stabilize at around 13,500, even if it falls before that. He says that Japan's real economy is currently stronger than it was in June, when the Nikkei average fell below 13,000. He adds that both micro and macro economies, such as corporate earnings and economic gauges, will support stock prices.
(Nikkei Quick News, Oct. 8)