Japan’s Nikkei Extends Second Quarterly Gain; Yuan Rises

Japan’s Nikkei 225 Stock Average extended its best back-to-back quarterly gain in four decades and the nation’s long-term bonds rose amid expectations for economic stimulus. The yuan and South Korean stocks climbed.

The Nikkei added 0.5 percent even as the broader Topix Index slid 0.2 percent at the 3 p.m. close in Tokyo. The MSCI Asia Pacific Index increased 0.1 percent with many markets shut for a holiday. Japan’s 20-year bond yields touched the lowest since 2003, and the yen is set for a sixth monthly drop on bets Bank of Japan Governor Haruhiko Kuroda will heed the government’s call to boost monetary easing as early as next week. The yuan touched a 19-year high.

Japan’s manufacturers predict a rebound in production this month after the deepest slide since the aftermath of the March 2011 earthquake. Kuroda said this week the BOJ may scrap a rule limiting the scale of asset buying and scoop up longer-maturity bonds to reach a 2 percent annual inflation target it adopted at the urging of Prime Minister Shinzo Abe.

“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.”

Financial markets in the U.S. and most of Europe were shut today for Good Friday, while exchanges in Russia and Turkey were open. Much of Asia is also closed, including Hong Kong, Singapore, India, Australia, Indonesia, New Zealand, the Philippines and Sri Lanka.

Kospi, Kuroda

Korea’s Kospi index advanced 0.6 percent even as military tensions with the North intensified. North Korean leader Kim Jong Un yesterday ordered rockets be placed on standby, the state-controlled Korean Central News Agency said today. The won strengthened 0.2 percent to 1,111.35 per dollar, posting the best quarterly run since September 2010.

The yen slipped less than 0.1 percent 94.17 per dollar as of 3:40 p.m. in London, set to complete its longest stretch of monthly declines since 2001. The euro was little changed at $1.2817 against the greenback.

Japan’s industrial output will rise 1 percent in March after a 0.1 percent drop in February from the previous month, according to estimates submitted for a Trade Ministry report today. Year-on-year data showed production slid 11 percent in February while consumer prices excluding fresh food fell 0.3 percent, failing to rise for a 10th month.

Kuroda will preside over his first BOJ policy meeting on April 3-4. He said this week he aimed to achieve the 2 percent price target within two years.

BOJ Expectations

Japan’s 20-year government bond yield slid as much as 4 1/2 basis points to 1.360 percent, and the 30-year rate sank 6 basis points to 1.5 percent. Both were the least since July 2003. The 10-year rate jumped five basis points to 0.56 percent.

“The BOJ will announce something big, at least exceeding market expectations,” said Nissay Asset’s Kubo.

The Nikkei closed 19 percent higher this quarter, extending the 17 percent increase in the last three months of 2012. That’s the best two-quarter performance since December 1972, when the measure rose 37 percent.

The Standard & Poor’s 500 Index climbed 0.4 percent to a record yesterday after a report showed the U.S. economy grew at a faster pace than previously estimated in the fourth quarter and as Cyprus averted panic withdrawals as banks opened for the first time in almost two weeks. The Stoxx Europe 600 Index climbed 0.5 percent, posting a 5 percent quarterly gain.

Europe Concerns

In Italy, President Giorgio Napolitano took charge of the search for the next prime minister after Pier Luigi Bersani was unable to assemble a majority in the divided parliament.

“The worst-case scenario has been avoided in Cyprus, but we think the risks to the euro remain to the downside, due to the negative implications for the banking sector, political uncertainty in Italy and a sluggish growth outlook,” Barclays Plc strategists led by Yuki Sakasai wrote in an e-mailed note to clients yesterday.

French data today showed that producer prices increased 1.9 percent in February from a year earlier, compared with the median estimate of 1 percent in a Bloomberg News survey of analysts and followed a revised 2 percent increase in January.

In the U.S., the Commerce Department reported consumer spending increased 0.7 percent in February, the most in five months. Other data showed confidence among American consumers unexpectedly increased in March from the prior month.

Stock Rally

More than two shares fell on the Topix for every one that gained. The index rallied 43 percent from Nov. 14, when elections were announced that brought Abe to power on a platform of increased stimulus and central bank easing.

The MSCI Asia Pacific Index rose 4.8 percent this quarter. The Shanghai Composite Index slid 1.4 percent in the past three months and was little changed today after earlier rising as much as 0.5 percent.

Malaysia’s ringgit strengthened 0.7 percent this week and 0.2 percent today to 3.0900 per dollar. It was the best five-day performance since the period ended Jan. 11.

The yuan touched a 19-year high, extending its gains for the quarter after the central bank raised the reference rate to the strongest level in more than 10 months. The People’s Bank of China increased the daily fixing by 0.08 percent to 6.2689 per dollar, the highest since May 2, 2012.

Turkey Trade

The Istanbul Stock Exchange National 100 Index rose 0.8 percent, extending this quarter’s advance to 9.8 percent, after a report showed Turkey’s trade deficit was less than economists estimated. S&P raised the country’s debt rating to BB+, one step below investment grade, on March 27.

The Micex Index of stocks added 0.3 percent today, leaving the gauge 2.5 percent lower this year. Shares slumped in the first quarter on concern Cyprus’s debt crisis may wipe out as much as $60 billion in Russian deposits and loans.

Gold for immediate delivery was little changed at $1,598.80 an ounce. Prices have lost 4.6 percent this quarter, following a 5.5 percent slump in the three months through December, the first back-to-back losses since 2001.

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