Nikkei 225 Recovers Lehman Losses as Yen’s Tumble Fuels Advance

Japanese stocks rose last week, erasing losses from the 2008 collapse of Lehman Brothers Holdings Inc., as the Nikkei 225 Stock Average capped a 42 percent rally since mid-November.

The Nikkei 225 rose 2.6 percent yesterday to close at 12,283.62, a level not seen since before Lehman filed for bankruptcy protection Sept. 15, 2008. After weathering a record earthquake and tsunami, nuclear meltdowns and a surge in the yen, Japan is the last of the five biggest equity markets to recover to pre-crisis levels.

About $1.4 trillion has been restored to the Nikkei 225 from its lowest level in March 2009 after the U.S.’s biggest bankruptcy plunged the world into financial crisis. The measure has gained for all but one week since November on optimism that new Prime Minister Shinzo Abe and his nominee for Bank of Japan governor, Haruhiko Kuroda, will succeed in ending deflation.

“Now you have a government very keen on ending deflation and a BOJ governor who says Japan can and should do anything,” said Nader Naeimi, the Sydney-based head of dynamic asset allocation at AMP Capital Investors Ltd., which manages $126 billion. “As the healing process continues, shares continue to regain lost ground. It’s been long, but at least we’re finally there.”

Japan’s recovery from the Lehman shock was hampered by a surge in the yen that accelerated after the country was struck in March 2011 by a record earthquake that triggered a tsunami and the worst nuclear crisis in 25 years.

The yen touched a post-war record of 75.35 per dollar in October 2011, prompting Toyota Motor Corp. President Akio Toyoda to warn that Japan’s automobile industry faced collapse if its strength continued.

Turning Point

The currency has tumbled 16 percent since Nov. 14, when elections were announced that swept Abe to power on a platform of government spending and monetary easing to spur growth. That’s the biggest drop in a measure of 10 developed nations’ currencies, according to Bloomberg Correlation-Weighted Currency Indexes. The yen’s decline drove the Nikkei 225 to record its longest streak of weekly gains since 1959 last month.

Mazda Motor Corp., a carmaker that gets 77 percent of sales overseas, has led the Nikkei’s rally, surging 190 percent as the currency’s drop boosted the value of overseas sales when repatriated. Kawasaki Kisen Kaisha Ltd., the country’s NO. 3 shipping line, surged 130 percent.

Daiwa Securities Group Inc., the second-biggest brokerage in Japan, more than doubled during the period on speculation surging share trading volume will boost commissions. Just three companies in the Nikkei 225 retreated.

Conservative Forecasts

Abe’s new government unveiled a 10.3 trillion yen ($107.5 billion) fiscal stimulus budget that it said Jan. 11 will add 2 percentage points to gross domestic product and create 600,000 jobs. The premier convinced the Bank of Japan to double its inflation target and Kuroda has pledged to do whatever it takes to end 15 years of deflation.

“Given the rapid weakening of the yen, we think corporate profit targets are conservative and think upward revisions are likely to continue to have the edge over downward ones,” Citigroup Inc. strategist Kenji Abe wrote in a report dated March 1.

About 64 percent of Nikkei 225 companies beat analyst earnings projections for the quarter ended Dec. 31, Bloomberg data show. Profits for the Nikkei 225 are expected to increase 20 percent in the next 12 months, according to analyst estimates compiled by Bloomberg.

Earnings projections from some of Japan’s biggest companies have also increased, with Toyota Motor Corp., the world’s biggest automaker and Japan’s biggest company by market value, leading a revival among the nation’s exporters.

Japan Tobacco

Toyota raised its profit forecast to a five-year high on Feb. 5. The company joined Japan Tobacco Inc., Asia’s largest listed tobacco maker, and Canon Inc., the world’s biggest maker of cameras, in boosting their outlook because of the weaker yen. All three companies’ shares have surged at least 39 percent since mid-November.

Even while the Nikkei 225 has gained, valuations for the Nikkei 225 are still below its global peers. The measure trades for 1.49 times the book value of its companies’ assets, compared with 1.42 on the last trading day before Lehman collapsed. The Standard & Poor’s 500 Index trades for 2.14 times the value of net assets, the Stoxx Europe 600 Index is priced at 1.53 times and the Hang Seng Index is at 1.53.

“Japan has the potential to catch up with its earnings if the yen continues in its weakening trend,” said Hiromichi Tamura, chief Japan equity strategist for Nomura Holdings Inc. “Japan has faced many adversities, such as the earthquake, strong yen and floods in Thailand. If the reasons for Japan being late are removed, then Japan definitely has the potential to catch up.”

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