Japan’s Topix Advances to Seven-Week High on Yen, U.S. Optimism

May 26, 2014 2:44 am ET

May 26 (Bloomberg) -- Japan’s Topix index rose to a seven- week high as the yen held declines and U.S. stocks climbed to a record after new home sales data buoyed optimism about the world’s largest economy.

Electrical-appliance exporters provided the biggest boost to the Topix. Nikon Corp. climbed the most on the Nikkei 225 Stock Average after the camera maker’s equity rating was raised at Credit Suisse Group AG. Sony Corp. gained 3.1 percent after saying it has formed a joint venture to make and sell game consoles in China. Dainippon Sumitomo Pharma Co. plunged by a record after saying it was ending a drug trial.

The Topix climbed 1.2 percent to 1,194.69 at the close of trading in Tokyo, its highest since April 7. All but one of the 33 industry groups advanced, with volume about 8.4 percent below the 30-day average. The measure gained 1.8 percent last week. The Nikkei 225 added 1 percent today to 14,602.52. The yen gained less than 0.1 percent to 101.93 per dollar after falling 0.2 percent on May 23.

“New highs for U.S. stocks and the yen a touch weaker are helping lift Japanese shares,” said Stuart Beavis, head of institutional equity derivatives at Vantage Capital Markets in Hong Kong. “U.S. new home sales were a good number and show a stronger economy. If they continue to taper and the possibility of rate rises comes quicker in the U.S., the yen will weaken and Japanese shares should rise further.”

Home Sales

The Standard & Poor’s 500 Index added 0.4 percent on May 23 to close above 1,900 for the first time. Sales of new U.S. homes increased 6.4 percent in April, the most since October, to a 433,000 annualized pace from a revised 407,000 in March, Commerce Department data showed. The median forecast of 75 economists surveyed by Bloomberg called for the rate to accelerate to 425,000.

The Topix Electric Appliances Index climbed 1.3 percent today and was the biggest boost to the broader gauge.

Sony gained 3.1 percent to 1,683 yen. The electronic-device maker agreed to form two ventures with Shanghai Oriental Pearl (Group) Co. to start producing and selling PlayStation consoles after China lifted a 13-year ban on sales of the machines. Sony will also end the development of organic electro-luminescence displays due to difficulty in reducing costs, the Asahi newspaper reported.

Nikon gained 4.3 percent to 1,630 yen, the biggest increase since February. Credit Suisse raised its rating on the stock to neutral from underperform, while keeping its share price target at 1,550 yen.

Dainippon Plunges

Among stocks that fell, Dainippon Sumitomo Pharma plunged 21 percent to 1,158 yen, the steepest drop on record and the biggest loss on the Nikkei 225. The drugmaker said it stopped a study on an experimental treatment for colorectal cancer after an independent safety monitoring committee said the drug, called BBI608, failed to meet the criteria set for managing the disease. SMBC Nikko Securities Inc. cut its rating on the stock, citing the timing of the suspension as a negative surprise.

Monetary easing and government spending drove a world- beating 51 percent jump for Japan’s Topix in 2013. The gauge has fallen 8.3 percent this year, the most among 24 developed markets tracked by Bloomberg, amid concern the measures won’t be enough to revive the economy and generate inflation.

“Investors are expecting corporate-tax cuts as number one on the list for the government growth strategies in June, as well as labor-market reform, including getting women in the workforce, and agricultural reform,” Beavis said. “Abe has to increase growth and increase productivity, but the demographic issue is key.”

The Topix traded at 1.16 times book value today, compared with 2.65 for the S&P 500 and 1.89 for the Stoxx Europe 600 Index on May 23. Markets in the U.S. and U.K. are closed today for a holiday.