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Nikkei tumbles on strong yen ; fall in US bond yields raise

Bareksa16 Mei 2014
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Nikkei tumbles on strong yen ; fall in US bond yields raise
Woman walks past electronic boards showing Japan's Nikkei average, Dow Jones Industrial Average and the exchange rates between the Japanese yen and the U.S. dollar, outside a brokerage in Tokyo (REUTERS/Toru Hanai)

Demand from Japanese retail investors should provide support, they say, given that the market's valuation

Bareksa.com - Japanese shares stumbled on Friday as the combination of a stronger yen and a second day of declines on Wall Street depressed sentiment, leaving the market
poised for the third-week of losses in the past month.

The yen strengthened to a one-month high, which often causes knee-jerk selling as a stronger currency crimps exporters' incomes.

Indeed, exporters tumbled in early trade and weighed on the Nikkei share average, which fell 1.6 percent to 14,065.27, moving further away from a one-week high of 14,464.01
hit on Wednesday. The benchmark is on course to post its third week of losses in the past four weeks.

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The poor start to trading came after U.S. stocks fell for the second day.

Some analysts also raised concern about the continued fall in U.S. Treasury yields and the implications for growth in the world's biggest economy.

"What's making many investors nervous is a big fall in U.S. bond yields in recent days, which run counters to the consensus view that the U.S. economy will lead global economic growth. People are starting to worry if it is a sign of a weaker growth," said Tetsuro Ii, the president of Commons Asset
Management.

Benchmark U.S. Treasuries yields fell to six-month lows on Thursday.

The fall in U.S. and European bonds yields are thought to largely reflect expectation the Federal Reserve will keep easy policy for an extended period, and on expectations the European Central bank will cut rates next month. Still, the head-scratching fall in U.S. yields are starting to worry some investors that it may indicate the economy is not as rosy as it seems.

A healthy U.S. economy would be crucial to Japan's recovery at a time when investors are counting on exports to offset the negative impact from a domestic tax hike in April.

The Tokyo Stock Exchange's all 33 sector subindexes fell on Friday, led by losses in banks and brokerage firms

SMFG fell 3.4 percent and Mizuho Financial 2.0 percent while Nomura Holdings and 2.4 percent.

Among exporters, Toyota Motor Co fell 2.4 percent while Sony, still smarting from its poor earnings announced earlier this week, fell 3.4 percent.

Sumco Corp bucked the trend, climbing 6.4 percent in heavy trade after it raised its half-year profit outlook, citing strong demand for its silicon wafer part products for smart phones.

Many analysts expect fairly strong support in the Nikkei around 14,000, and its April low around 13,885.

Demand from Japanese retail investors should provide support, they say, given that the market's valuation looks fairly cheap around that level.

Prime Minister Shinzo Abe is due to unveil a package of structural reforms in June, which will form the third arrow of his policies to revitalise Japan's economy. The other two,
fiscal and monetary stimulus, are already in place.

"I think the market is unlikely to fall below the April low. But at the same time, I don't really expect buying to pick up momentum until next month due to uncertainty on growth
strategies," said Takashi Oba, senior strategist at Okasan Securities.

The broader Topix fell 1.9 percent while the new JPX-Nikkei Index 400 shed 1.8 percent. (Source : Reuters)

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