Japan’s Nikkei Snaps Eight-Day Rally on Overheating Sign

Japanese stocks fell, with the Nikkei 225 Stock Average halting the longest winning streak since July 2009, after a technical indicator signaled the market has advanced too far, too fast.

Daiwa Securities Group Inc. (8601) fell 3.1 percent to pace losses among brokerages, the best performing industry on the Topix (TPX) Index since November. Japan Tobacco Inc. fell 0.7 percent after the government priced a stake in the cigarette maker below yesterday’s closing level. Nippon Steel & Sumitomo Metal Corp. (5401), Japan’s biggest steelmaker, jumped 4.4 percent on a report it will shut a furnace to cut costs.

The Nikkei 225 fell 0.3 percent to close at 12,314.81 in Tokyo, snapping an eight-day winning streak. The Topix lost 0.4 percent to 1,035.90 after rising as much as 1 percent. The Nikkei’s 14-day relative strength index, a gauge of market momentum, hit 73 yesterday, above the 70 threshold that some traders say signals stocks are overbought.

“The market was overheating in the short term and poised for profit taking,” said Yutaka Miura, a senior technical analyst at Mizuho Securities Co., a unit of Japan’s third- biggest lender by market value. “The market sentiment remains strong. From here, investors will wait and see what policy the BOJ will actually take.”

The Topix has rallied 43 percent from Nov. 14, when a general election was announced, fueling optimism a new government will do more to beat deflation. An index of brokerages surged about 70 percent in that time as increasing trading volumes spurred expectations of higher fee revenue.

Relative Value

The Topix traded at 21.1 times estimated earnings, compared with 14.1 for the Standard & Poor’s 500 Index and 12.7 for the Stoxx Europe 600, according to data compiled by Bloomberg.

Daiwa Securities dropped 3.1 percent to 651 yen, and Japan Asia Investment Co. (8518), which gets 22 percent of its revenue outside Japan, declined 7.5 percent to 87 yen after gaining about 12 percent over the past two days. Ichiyoshi Securities Co., of which 43 percent is owned by U.S. investors, fell 3.5 percent to 1,037 yen after rising for eight consecutive days.

Shares rose earlier as BOJ deputy governor nominee Kikuo Iwata said the central bank can end deflation solely through buying government debt and doesn’t need to purchase riskier assets to meet its inflation target. Iwata spoke at upper house parliamentary confirmation hearing today. Separately, minutes from a BOJ meeting showed members agreed to pursue aggressive easing to achieve a price target.

New BOJ

The Nikkei 225 (NKY)’s 43 percent advance since the elections that brought Abe to power were announced has been undermined by declines in the yen. When converted back into dollars Japan’s market has increased about 19 percent, just three percentage points more than the S&P 500 (SPXL1) in the same time.

Futures on the S&P 500 slipped 0.2 percent today. The index rose 0.3 percent at the close of trading in New York yesterday to within nine points of its record high.

Nippon Paint Co. dropped 5.7 percent to 852 yen, the biggest drop since March 2011. Kyodo News reported Wuthelam Holdings Pte Ltd. would back out of its takeover bid today. The paint company announced the withdrawal after the market closed.

Japan Tobacco dropped 0.7 percent to 2,990 yen after the government priced a stake in the firm 2 percent below yesterday’s closing price as part of a 978 billion yen ($10.1 billion) sale to help fund rebuilding projects after the 2011 earthquake and tsunami.

Nippon Steel & Sumitomo Metal gained 4.4 percent to 261 yen after the Nikkei newspaper reported the oldest of its three furnaces at its Kimitsu mill in Chiba Prefecture will be closed, cutting production capacity by 7 percent. The company seeks to add 200 billion yen to earnings through cost cuts and other steps, the report said.

The Nikkei Stock Average Volatility Index fell 2.9 percent to 25.72 today, indicating traders expect a swing of about 7.2 percent on the benchmark gauge over the next 30 days. Trading volume on the Nikkei 225 was 16 percent above the 30-day average.

To contact the reporter on this story: 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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