Japan Shares Rise as Yen Drops After Yellen, Boosting Automakers

  • Fed Chair says U.S. economic strength warrants rate hike
  • Abe aide says Japan needs to delay sales tax boost until 2019

Japanese stocks rose, with the benchmark gauge closing at its highest level in a month, as growing confidence the U.S. is headed toward an interest rate increase sent the dollar higher versus the yen, buoying exporters.

The Topix index climbed 1.2 percent to 1,366.01 in Tokyo, the highest since April 27. The Nikkei 225 Stock Average gained 1.4 percent to 17,068.02. The yen weakened 0.9 percent to 111.28 per dollar after Federal Reserve Chair Janet Yellen said ongoing improvement in the U.S. economy would warrant higher borrowing costs “in the coming months."

“The stock market’s reaction is changing and coming around to the idea that the U.S. economy is strong enough to withstand higher rates,” Yoshinori Ogawa, a market strategist at Okasan Securities Co. in Tokyo, said by phone. “Even as we begin to acknowledge the possibility of rate hikes, we’re unlikely to see a selloff in stocks. The expectations for an increase are leading to a stronger dollar and firmer stocks globally, and that’s a stabilizing factor for Japanese shares.”

The Topix has rebounded about 14 percent from a February low amid optimism a U.S. rate rise won’t derail the global economy and speculation Japan will delay a planned sales-tax increase that could otherwise hamper growth.

Yellen stopped short of giving an explicit hint that the central bank would act at its next meeting on June 14-15. A series of speeches by Fed officials, the release of the minutes from their April policy meeting, and relatively stronger economic data have heightened investor expectations for another tightening move either next month or in July.

Odds the U.S. will raise borrowing costs in June jumped to 30 percent from 4 percent two weeks ago, while traders see the likelihood of an increase by July at 54 percent. The dollar climbed to its highest level against the Japanese currency since April 28 on Monday, erasing almost all of the yen’s gains after the Bank of Japan disappointed investors last month by forgoing stimulus.

The weaker yen boosted exporters, with Toyota Motor Corp. and Honda Motor Co. contributing the most to the Topix’s gain. Nissan Motor Co. jumped 3.8 percent after brokerages including UBS Group AG and Nomura Holdings Inc. increased their target prices on the automaker’s shares. Mazda Motor Corp. climbed 3.7 percent, while TDK Corp., the Apple Inc. supplier that gets more than 90 percent of revenue abroad, gained 2.4 percent.

Volume, Turnover

Volume on the Topix was about 25 percent below the 30-day average on Monday, while turnover fell to 1.6 trillion yen ($14.4 billion), the lowest level this year.

Data Monday showed private consumption in Japan has slowed, adding to the argument the country needs to delay an increase to the sales tax. Retail sales in April were unchanged from a month earlier, while posting a 0.8 percent drop from a year ago. The levy needs to be delayed until late 2019 to sustain an economic recovery, Hakubun Shimomura, an aide to Prime Minister Shinzo Abe, said on Fuji television on Sunday. Abe is also planning to propose a fiscal stimulus package of as much as 10 trillion yen ($89.8 billion), the Nikkei newspaper reported.

West Japan Railway Co. added 2.3 percent after Jefferies Group LLC raised its rating on the railroad operator, citing optimism over a new bullet train line and higher demand from tourists. GMO internet Inc., which offers web infrastructure, jumped 3.5 percent after announcing it will team up with lender Aozora Bank Ltd. on an internet banking venture. Aozora’s shares added 0.5 percent.

Steel, Airlines

Iron and steel producers were one of only two of the Topix’s 33 industry groups to decline. Kyoei Steel Ltd. slipped 1.9 percent after SMBC Nikko Securities Inc. downgraded the stock, while Hitachi Metals Ltd. lost 1.8 percent. Airlines also sank, with Japan Airlines Co. and ANA Holdings Inc. dropping at least 0.8 percent.

Futures on the S&P 500 Index added 0.2 percent after the underlying gauge climbed 0.4 percent on Friday to cap its strongest weekly advance in three months. Markets in the U.S. are closed Monday for Memorial Day.

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