Nikkei hits new 5-1/2 year high on weak yen, signs of improving economy

 

The Nikkei share average surged to a fresh 5-1/2 year high on Monday, buoyed by further weakness in the yen and optimism over the growth outlook after the Japanese government raised its assessment of the economy for the first time in two months.

 

Signs of an improving U.S. economy and Wall Street's record closing high on Friday cemented the positive mood in markets.

 

The Nikkei climbed 1.5% to 15,360.81, the highest closing mark since December 2007. During the day, the index rose as high as 15,381.74, the highest level for the same period.

 

The Nikkei has gained 48% this year, and it has added more than 8% since May 9, when the dollar broke above the 100-yen level.

 

The government's monthly report said that economy is gradually recovering, which was an upgrade from last month, when it said the economy was showing signs of recovery but still had some weak spots.

 

The upgrade highlights the success of Prime Minister Shinzo Abe's policies, which combine stimulus spending with aggressive monetary easing to pump-prime the economy and are resulting in a sharp weakening of the yen.

 

Exporters, the chief beneficiaries of a weak yen, advanced. Toyota Motor Corp  rose 1.9%, Sony Corp jumped 5.7% and Komatsu Ltd  advanced 1.7% after the dollar broke above the 103-yen level on Friday buoyed by strong U.S. consumer sentiment data.

 

The dollar has pulled back to trade at 102.65 yen, but not far from its 4-1/2 year high of 103.32 tapped on Friday

 

"It's not like we don't think of the possibility of a pullback given the recent rises in the market, but both domestic and overseas economies are recovering, so the market will probably keep rising," said Fujio Ando, an analyst at Chibagin Securities.

 

Adding to the positive mood was a Nikkei report that Japan and India are expected to agree at their summit meeting this month to resume talks toward a civilian nuclear cooperation pact. Manufacturers of nuclear reactors benefited on the report, with Toshiba Corp  up 4.6%, Mitsubishi Heavy Industries  rising 3.6% higher and Hitachi Ltd  rising 2.6%.

 

In the auto sector, Mitsubishi Motors Corp  surged 12% and Nissan Motor Co rose 5.6% after Mitsubishi Motors' President Osamu Masuko told reporters that the two companies hope to account for 20% of the minicar market.

 

The broader Topix gained 1.3 % to 1,269.51 in relatively heavy trade, with 4.87 billion shares changing hands. It compares with last month's average daily volume of 4.31 billion shares.

 

Friday's upbeat consumer confidence data from the United States, Japan's major export market, has helped underpin the Nikkei in recent sessions.

 

"In the next few days, the Nikkei's levels at 15,600 and higher are in sight," said Hiroyuki Fukunaga, the chief executive of Investrust.

 

Analysts said the weakening yen has seen investors becoming increasingly confident about the prospects for higher Japanese corporate earnings for the fiscal year through March.

 

They expect an average operating profit rise of 30 % from the previous year, compared with the companies' conservative forecasts of a 20% increase in their operating profits.

 

Bucking the market, interest rate sensitive stocks lost ground after the yield on the 10-year cash bonds rose four basis points to 0.840% after rising as high as 0.875%. Mitsubishi Estate Co  fell 2.3% and Mitsui Fudosan Co  dropped 2.1%.