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Japanese Stocks Rise on U.S. Fed Monetary Easing Optimism

Japanese stocks rose, with the Nikkei 225 Stock Average heading for its highest close in almost eight months, on optimism the U.S. Federal Reserve will add stimulus. Shares held gains after North Korea launched a long- range rocket in defiance of international sanctions.

Sony Corp. and Honda Motor Co. (7267) were among exporters to the U.S. that advanced. Kawasaki Heavy Industries Ltd., which gets 20 percent of its sales from aerospace and defense, gained 3.7 percent. Mitsubishi Motors Corp. (7211) jumped 10 percent after the Nikkei newspaper reported a withdrawal from European production will boost the carmaker’s profits. Osaka Securities Exchange Co. advanced 7.7 percent after the Financial Services Agency approved its merger with the Tokyo Stock Exchange Group Inc.

The Nikkei 225 gained 0.6 percent to close in Tokyo at 9,581.46, the highest level since April 19. The broader Topix Index climbed 0.7 percent to 791.29, with about three stocks rising for every two that fell. Shares gained as data showed Japan’s machinery orders rose for the first time in three months. The Fed ends a meeting today at which it may announce more bond purchases, known as quantitative easing.

“The U.S. economy is recovering, and the consensus is that the Fed will make a move to add more strength to it,” said Koji Toda, chief fund manager at Resona Bank Ltd. in Tokyo, which oversees about 15 trillion yen. “The rocket launch surprised me a bit because news reports said they were putting it off for now. It’s not a good thing at all, but it hasn’t appeared to scare the market much.”

The Topix has risen 9.5 percent since Nov. 14 when the government called for elections on Dec. 16. Stocks gained as the yen weakened on bets the opposition Liberal Democratic Party will win and call for more monetary easing.

Relative Valuations

The Topix traded at 0.9 times book value today, compared with 2.1 for the Standard & Poor’s 500 Index and 1.5 for the Europe Stoxx 600 Index. A number less than one means that companies can be bought for less than the value of their assets.

Fed officials are considering whether to supplement $40 billion a month of mortgage-bond buying with purchases of Treasuries when their Operation Twist program expires at the end of the month. A two-day meeting concluding today will be followed by statements on the economy and monetary policy.

Sony added 3.1 percent to 833 yen. Honda, which gets about 44 percent of its sales from North America, increased 1.3 percent to 2,749 yen. Toyota Motor Corp. (7203) advanced 0.9 percent to 3,560 yen.

Fed Stimulus

“The Fed is expected to announce QE4, or effectively $45 billion a month buying of U.S. treasuries to replace its expiring Operation Twist,” said Cameron Peacock, Melbourne- based strategist at trading-services provider IG Markets Ltd. “In theory, there shouldn’t be a huge reaction to news that the Fed is initiating this program given it has been speculated on for some time and should be priced in. Look for a sizable negative reaction if the Fed either does a smaller size or delays the program until the New Year.”

Futures on the S&P 500 fell 0.1 percent today. The gauge gained 0.7 percent yesterday as German investor confidence climbed and traders awaited progress on federal budget negotiations in Washington. U.S. lawmakers need to agree on a budget to prevent more than $600 billion of automatic tax increases and spending cuts from coming into effect next year.

Defense contractors rose after North Korea’s rocket launch. Kawasaki Heavy Industries gained 3.7 percent to 198 yen. IHI Corp. (7013), which makes ships and rocket propulsion systems for military use, advanced 2.7 percent to 188 yen. Fuji Heavy Industries Ltd., which supplies the defense agency with aircraft parts, rose 2.9 percent to 918 yen.

North Korean Rocket

North Korea launched a long-range rocket today in defiance of international sanctions, according to the South Korean and Japanese governments. The rocket was launched at 9:49 a.m. and debris fell into the sea away from the Korean peninsula and east of the Philippines, according to the Japanese government.

Mitsubishi Motors jumped 10 percent to 87 yen, the second- biggest gain on the Nikkei 225. (NKY) The carmaker will add 15 billion yen to operating profit annually by ending its European production, the Nikkei reported, without attribution.

Canon Inc. rose 2.6 percent to 3,075 yen, the biggest contributer to the Topix’s gains. The camera maker will cut costs by 70 billion yen to 80 billion yen next year by reducing inventory and increasing automation, the Nikkei reported, without saying how it got the information.

Osaka Securities Exchange jumped 7.7 percent to 407,000 yen. The shares rose as much as 19 percent today after the Financial Services Agency yesterday approved the merger of the Osaka bourse and its Tokyo rival. The merged bourse, which will be called the Japan Exchange Group, will list on the first section of the Tokyo Stock Exchange on Jan. 4, the FSA’s statement said.

The Nikkei Stock Average Volatility Index (VNKY) lost 0.4 percent to 17.39 today, indicating traders expect a swing of about 4.9 percent on the benchmark gauge over the next 30 days.

To contact the reporters on this story: Anna Kitanaka in Tokyo at akitanaka@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net

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

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