Japanese Stocks Rise Second Day as S&P Rally Boosts Investor Confidence

Japanese stocks rose for a second day after the biggest three-day rally on the Standard & Poor’s 500 Index since 2009 boosted investor confidence following three weeks of losses.

Sony Corp. (6758), Japan’s biggest exporter of consumer electronics, advanced 0.4 percent. Mitsubishi Corp. (8058), the country’s largest trading house by market value, gained 0.7 percent as oil traded near its highest in two weeks. Tokyo Electric Power Co. led declines among power companies after Goldman Sachs Group Inc. said uncertainty surrounding government policy makes utilities a poor long-term investment.

The Nikkei 225 Stock Average rose 0.2 percent to 9,107.43 at the 3 p.m. close in Tokyo. The broader Topix index gained 0.3 percent to 779.06. Volume on Japan’s biggest stock exchange was lower than average in the middle of a traditional holiday period.

“Stocks will continue to rebound as long as sentiment stabilizes,” said Masaru Hamasaki, who helps oversee the equivalent of $18 billion as chief strategist at Toyota Asset Management Co. in Tokyo. “Even though Japanese stocks are very cheap in terms of valuations, you could still see markets plunge if we have some bad news that stirs up anxiety.”

The Topix lost 7.4 percent this month amid concern Europe’s debt crisis will damage the banking system and damp demand in one of Japan’s biggest export markets. Japanese stocks also fell after Standard & Poor’s on Aug. 5 cut its rating on U.S. government debt.

Price-To-Book

Declines in Japanese shares this month reduced the average price of stocks in the Topix to 0.91 times book value, the lowest level since March 2009. A level below 1 means a company’s assets are worth more than its market capitalization.

Yoshifumi Kikuchi, head of dealing at Nissan Century Securities Co. in Tokyo, said trading volume was light today because of the O-bon holiday, a period starting Aug. 13 during which many Japanese companies close for as long as a week and people return to their hometowns. The value of shares traded on the first section of the Tokyo Stock Exchange was about 24 percent less than this year’s daily average of 1.41 trillion yen.

Investors were also in “a wait-and-see mood” ahead of a meeting between French President Nicolas Sarkozy and German Chancellor Angela Merkel, Kikuchi said. The leaders of Europe’s two largest economies will meet today in Paris to discuss enforcement of European Union budget rules and expanded coordination of national economies, according to French Finance Minister Francois Baroin.

France Hammered

Doubts over France’s AAA credit rating last week hammered shares in the country’s banks and sent the risk premium of its government bonds to a euro-era record.

Futures on the S&P 500 slipped 0.8 percent today. The index gained 2.2 percent yesterday in New York, erasing last weeks’ drop, as valuations near the cheapest level in two years helped extend the best three-day rally since March 2009.

Lower stock prices also contributed yesterday to a spate of U.S. takeovers. Google Inc. (GOOG), the biggest maker of smartphone software, agreed to buy Motorola Mobility Holdings Inc. to expand in the hardware business. The $12.5 billion acquisition was Google’s largest yet. Time Warner Cable Inc. also agreed to buy Carlyle Group’s Insight Communications Co. for $3 billion.

“Large-scale acquisitions are increasing in the U.S., indicating stocks are relatively cheap,” said Fumiyuki Nakanishi, a strategist at Tokyo-based SMBC Friend Securities Co. “There’s no doubt that Japanese stocks are cheap in terms of valuations and the rebound will continue.”

Exporters Gain

Japanese exporters to the U.S. advanced. Sony gained 0.4 percent to 1,700 yen. Canon Inc. (7751), the world’s biggest camera maker, rose 0.4 percent to 3,600 yen. Carmaker Nissan Motor Co. added 0.6 percent to 720 yen.

Trading houses gained after the price of crude oil futures increased 2.9 percent yesterday in New York. Mitsubishi rose 0.7 percent to 1,855 yen. Mitsui & Co., Japan’s second-largest commodities trader, increased 0.6 percent to 1,314 yen.

Chemical maker DIC Corp. (4631) jumped 3.2 percent to 161 yen after the Nikkei newspaper reported the company is teaming up with the University of Tsukuba to develop technologies for mass producing bio-fuel material out of algae.

Power companies declined after Goldman Sachs said utilities are not attractive long-term investments because “the visibility on policy is very poor.” Tokyo Electric dropped 3.2 percent to 425 yen. Kansai Electric Power Co., the nation’s second-largest utility, fell 1.8 percent to 1,290 yen.

While Japan’s parliament on Aug. 3 approved state support to help Tokyo Electric compensate victims of the Fukushima disaster, many details of the plan, which calls for “cooperation from shareholders and other interested parties,” remain unclear.

Trade Minister Banri Kaieda said he didn’t know how much other utilities would be asked to contribute. Nuclear and Industry Safety Agency spokesman Tatsuji Narita has said the government isn’t providing an estimate for how many people will be compensated.

To contact the reporter on this story: Akiko Ikeda in Tokyo at iakiko@bloomberg.net.

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net.

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