Japan Shares Rise to Seven-Week High on Yen; Banks Climb

Japanese shares rose, with the Topix index climbing to its highest in seven weeks, as exporters gained after the yen traded near its weakest in a month. Banks advanced on a report they can withstand rising interest rates.

Toyota Motor Corp., the world’s largest carmaker, gained 2.6 percent. Mitsubishi UFJ Financial Group Inc., Japan’s biggest bank, advanced 2.5 percent after Standard & Poor’s Ratings Services said most Japanese lenders could meet required capital levels even if rates rise 3 percentage points. Endoscope-maker Olympus Corp. led declines on the Nikkei 225 Stock Average after saying it will sell shares.

The Topix climbed 2.1 percent to 1,196.89 at the close of trading in Tokyo, its highest since May 22, after losing 1.4 percent yesterday. The Nikkei 225 increased 2.6 percent to 14,472.90. U.S. stocks rose yesterday as the start of earnings season fueled optimism about growth.

“The yen is slowly moving into a weaker trading range, so that’s positive,” said Masahiko Ejiri, a Tokyo-based senior fund manager at Mizuho Asset Management Co., which oversees the equivalent of $34 billion. “The U.S. economy is looking quite sound, and Japan’s is following suit. Japanese shares may rally after the upper-house elections, with the Nikkei 225 reaching about 15,600 again.”

The Topix gained 4.8 percent last week, bringing its increase over three weeks to more than 12 percent, the most since April 2009. Today’s advance pares the gauge’s decline from its May 22 high to 6.2 percent. Shares have risen amid a weakening yen and optimism Prime Minister Shinzo Abe will push through economic reforms after elections on July 21.

Abe’s Liberal Democratic Party will get about 44 percent of the vote, with its partner New Komeito securing 5 percent, indicating the coalition will win a majority in the upper chamber, a Yomiuri newspaper poll published July 6 showed.

U.S. Futures

Futures on the Standard & Poor’s 500 Index added 0.4 percent today. The measure climbed 0.5 percent in New York yesterday, its third straight gain. Aluminum-producer Alcoa Inc., a bellwether for U.S. earnings, reported better-than-estimated results after the market closed.

The yen fell as much as 0.3 percent to 101.30 per dollar today. The currency traded at 101.37 intraday on July 7, the weakest level since May 28. It has fallen 7.3 percent since June 14. A weaker yen boosts overseas earnings when repatriated.

Toyota, which gets 31 percent of revenue from North America, rose 2.6 percent to 6,410 yen. Honda Motor Co., which generates about 83 percent of sales outside Japan, climbed 2.3 percent to 3,845 yen. Canon Inc., the world’s biggest camera maker, added 1.5 percent to 3,380 yen.

Bank Capital

Lenders provided the second-biggest boost to the Topix today after carmakers, with Mitsubishi UFJ climbing 2.5 percent to 654 yen. Sumitomo Mitsui Financial Group Inc., Japan’s No. 2 bank, advanced 2.3 percent to 4,775 yen. Mizuho Financial Group Inc., the No. 3, increased 2.9 percent to 216 yen.

Most Japanese lenders could meet required capital levels even if interest rates increase 3 percentage points from 2012 levels as the Bank of Japan provides record stimulus to beat deflation, S&P said in a report yesterday. Rising interest rates would erode the value of banks’ Japanese government bonds.

Lenders would be better able to withstand rate increases if they enhance the soundness of their assets, improve risk management and raise profitability, S&P also said.

“Given the high weighting of Japanese government bonds on banks’ balance sheets, there is concern a higher rate environment would impact capital adequacy ratios,” said Gavin Parry, managing director of Hong Kong-based brokerage Parry International Trading Ltd. “The S&P report helps calm those nerves.”

Cancer Diagnosis

Sumitomo Bakelite Co. climbed 4 percent to 388 yen after the Nikkei newspaper reported the chemical maker has developed a DNA chip to diagnose the progress of stomach cancer.

Shionogi & Co. added 5.6 percent to 2,182 yen. The Osaka-based drugmaker was rated new outperform at Mitsubishi UFJ Morgan Stanley Securities Co., with a 12-month price target of 2,900 yen per share.

Among shares that fell, Olympus slumped 5.4 percent to 2,928 yen, its lowest level since May 15. The world’s biggest maker of endoscopes said it plans raise as much as 118 billion yen ($1.2 billion) in an overseas share sale. The company will issue as many as 41 million shares, amounting to 12 percent of outstanding stock after the sale, and plans to spend almost half the funds on research and development at its medical unit.

The Topix traded at 1.3 times book value, compared with 2.4 times for the S&P 500 and 1.6 times for the Stoxx Europe 600 Index. The measure’s 30-day historic volatility was at 36.96 today, retreating from its July 2 high of 43.21.

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