Nikkei 225 Caps Biggest Yearly Advance Since 1972

Japanese shares rose, with the Nikkei 225 Stock Average capping its biggest yearly gain in four decades, as the yen retreated past 105 per dollar to its weakest in more than five years.

Nikon Corp., a camera maker that gets about 85 percent of sales overseas, added 1.3 percent. Nippon Sheet Glass Co. jumped the most on the Nikkei 225 after Daiwa Securities Group Inc. rated the shares new outperform. Maruha Nichiro Holdings Inc. dropped 2.7 percent after a report it will recall frozen food such as pizza after pesticide was found in the products. Nippon Paper Industries Co. tumbled 5.9 percent on a report its operating profit probably dropped.

The Nikkei 225 added 0.7 percent to 16,291.31 at the close of trading in Tokyo, closing the year 57 percent higher, the largest such increase since a 92 percent surge in 1972. The Topix index gained 1 percent to 1,302.29, with all but three of 33 industry groups rising. The yen weakened 0.2 percent to 105.34 per dollar, its lowest since Oct. 6, 2008.

“Japanese shares finally got the world’s attention again this year,” said Naoki Fujiwara, Tokyo-based chief fund manager at Shinkin Asset Management Co., which oversees about 600 billion yen ($5.7 billion). “Throughout the year, just when we thought we didn’t have any other catalysts to boost stocks, bit by bit we kept getting more. Whether these gains can continue next year will depend on whether we get more catalysts.”

Futures on the Standard & Poor’s 500 Index were little changed today. The measure fell less than 0.1 percent Dec. 27 after benchmark indexes rallied to all-time highs the previous day amid optimism over the economic recovery.

Yen Slides

The yen extended losses against the greenback after falling for a ninth straight week in the period ended Dec. 27. The Japanese currency is headed for a 21 percent decline against the dollar this year, its biggest such drop since 1979.

“The yen in the 105 range will have a big impact, and the flow will again be for a weaker yen, higher stocks,” said Ryuta Otsuka, a strategist at Toyo Securities Co. “There are a lot of expectations for shares to continue rising next year. Investors will keep investing in equities as they can’t miss getting in on these gains.”

Nikon gained 1.3 percent to 2,009 yen. Canon Inc., the world’s biggest camera maker, climbed 0.9 percent to 3,330 yen.

Sony Corp., which gets almost 70 percent of its revenue abroad, added 2.3 percent to 1,826 yen. Sony also rose after the Nikkei newspaper reported it will cancel the sale of its battery operations.

Nippon Sheet Glass

Nippon Sheet Glass gained 4.6 percent to 137 yen, the most on the Nikkei 225. The glassmaker for cars and buildings was rated outperform in new coverage by Daiwa Securities, with a share price target of 160 yen.

Among shares that fell, Maruha Nichiro lost 2.7 percent to 183 yen. The food maker will recall about 6.3 million bags of frozen food, such as pizza, made by a unit because a type of pesticide was extracted from the products, Kyodo news reported, citing an announcement by the company.

Nippon Paper sank 5.9 percent to 1,954 yen, the most on the Nikkei 225. The papermaker’s operating profit for the third quarter likely dropped 3 percent, the Nikkei newspaper reported.

The broader Topix’s 51 percent advance this year is its third-biggest on record, as Prime Minister Shinzo Abe and Bank of Japan Governor Haruhiko Kuroda take steps to end 15 years of deflation. Strategists surveyed by Bloomberg expect the equity measure to climb about 15 percent to 1,484.50 by the end of 2014, as the yen weakens amid prospects for further stimulus by the BOJ while the Federal Reserve cuts back.

Wage Debate

Japanese wages will fail to keep up with an increase in consumer prices, according to a survey by Bloomberg News. The benchmark for wages will gain 0.6 percent in the year starting April 1, according to the median forecast in a poll of 16 economists. Consumer prices will climb five times faster, increasing 3 percent, as Japan raises its sales tax for the first time since 1997, a separate Bloomberg survey showed.

The squeeze on consumers from higher prices risks undermining public support for Abenomics and dragging on retail spending, unless the prime minister can convince companies to boost paychecks. Japan’s biggest business lobby, Keidanren, will approve companies raising base salaries in annual spring labor negotiations for the first time since 2008, the Yomiuri newspaper reported, without citing anyone.

Changing Mindsets

“It will take a while for companies to change their mindset, which is still mired in deflation,” said Yoshimasa Maruyama, chief economist at Itochu Corp. in Tokyo.

The International Monetary Fund may upgrade its growth forecast for Japan, although the nation must start fiscal and structural reforms in 2014, IMF First Deputy Managing Director David Lipton was cited as saying in an interview in the Financial Times. The fund’s economic growth forecast for Japan of 1.2 percent next year will probably rise because of extra stimulus measures, Lipton said, according to the report.

The Topix traded at 1.32 times book value today, compared with multiples of 2.67 for the S&P 500 and 1.82 for the Stoxx Europe 600 Index on Dec. 27. Volume was 17 percent above the 30-day average.

To contact the reporter on this story: Anna Kitanaka in Tokyo at akitanaka@bloomberg.net

To contact the editor responsible for this story: Sarah McDonald at smcdonald23@bloomberg.net

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