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Nikkei 225 Posts Best Back-to-Back Quarters Since 1972

Photographer: Tomohiro Ohsumi/Bloomberg

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Photographer: Tomohiro Ohsumi/Bloomberg

A man sitting on a bicycle looks at a stock board outside a securities firm as pedestrians walk past in Tokyo.

Japan’s Nikkei 225 Stock Average (NKY) gained, capping its best back-to-back quarterly performance since 1972, when “The Godfather” hit the screens and Atari Inc. introduced its “Pong” video game.

The Nikkei 225 rose 0.5 percent to 12,397.91 in Tokyo today on optimism Prime Minister Shinzo Abe and policy makers will stimulate the economy. The measure added 19 percent this quarter, extending the 17 percent gain in the previous three months. That’s the best two-quarter advance since the period ended December 1972, when the measure rose 37 percent. The broader Topix Index (TPX) fell 0.2 percent to 1,034.71 today.

“It was like we had a big pile of dry hay, and Abe came in and lit up a bonfire,” said Ichiro Takamatsu, who helps manage 150 billion yen ($1.6 billion) at Tokyo-based Bayview Asset Management Co.

Bank of Japan Governor Haruhiko Kuroda will helm his first central bank meeting next week. The former Asian Development Bank president pledged yesterday to continue easing until a 2 percent inflation target is reached, in a sign he wants the central bank to strengthen its commitment to ending deflation.

In the last six months of 1972, the Nikkei 225 surged 37 percent to close at 5,207.94. That was the year “The Godfather,” starring Marlon Brando and Al Pacino, was released and went on to win three Oscars. Atari started selling millions of its game consoles featuring “Pong,” and Japan hosted the Winter Olympic Games in Sapporo.

“The economic and stock market environment in 1972 and now are very similar,” said Kenichi Hirano, a general manager and technical analyst at Tachibana Securities Co. in Tokyo. “Stocks have been rising for eight straight months and I think gains are going to continue.”

Abe’s Change

Japanese stocks have rallied since Nov. 14, when elections were announced that brought Abe to power on a platform of increased stimulus and central bank easing.

Stocks on the Topix Index trade at 21.37 times estimated earnings now, compared with 19.21 in December 1972, according to data from Daiwa Institute of Research Holdings Ltd. Book value is 1.21 now, compared with 2.88 in 1972, the data show.

The new government unveiled a 10.3 trillion yen spending plan in January, and Abe convinced the Bank of Japan (8301) to double its inflation target. Expectations that Abe can force the BOJ to bring forward plans for unlimited asset purchases have helped send the yen plunging 17 percent against the dollar since November, boosting the overseas earnings outlook for the nation’s exporters.

The Topix has risen 20 percent this quarter, extending last quarter’s 17 percent gain. That’s the gauge’s best two consecutive quarters since December 2005. Brokerages have posted the biggest advance on the Topix since mid-November, boosted by the recent stocks rally. All the Topix’s 33 industry groups have risen in that period.

‘Major Adjustment’

“Japanese stocks have simply gone through a major adjustment, catching up with overseas stocks as government policy and the yen changed direction,” said Isao Kubo, a Tokyo- based equity strategist at Nissay Asset Management Corp., which oversees about 5 trillion yen ($53 billion). “The adjustment isn’t over yet and stocks may extend gains a bit more as we see new policy content.”

In today’s trading, Mitsui Mining & Smelting Co., Japan’s biggest zinc refiner, surged 11 percent, the biggest gain on the Nikkei 225, after its equity rating was raised at Mitsubishi UFJ Morgan Stanley. Oki Electric Industry Co., which makes communication equipment, jumped 8.3 percent after disclosing plans to cut costs by as much as 3 billion yen a year by eliminating as many as 800 jobs.

Solar Tariffs

Electricity producers rose today after Japan gave its final approval to cut tariffs on solar power. Tokyo Electric Power Co. jumped 9.9 percent. Kansai Electric Power Co. and Hokkaido Electric Power Co. (9509) climbed at least 3.4 percent.

Japan approved a recommendation to cut the tariff on solar power by 10 percent for the fiscal year starting April 1 for 20 years, the Ministry of Economy, Trade and Industry said. The reduction marks the first rate change since the country started an incentive program for clean energy in July.

Among stocks that fell, Panasonic Corp. (6752), the maker of Viera televisions, tumbled 7.1 percent, the biggest drop on the Nikkei 225, after its president said the company will keep its loss- making plasma TV business.

Volume on the Nikkei 225 was 19 percent lower than its 30- day average today. Markets in Hong Kong, Australia, New Zealand, Singapore and India were shut for a holiday.

The Nikkei Stock Average Volatility Index fell 2.9 percent to 25.67 today, indicating traders expect a swing of about 7.4 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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