Japan’s Topix Gains After Capping Fourth Monthly Drop

Japan’s Topix index rose to a three-week high, after yesterday capping a four-month decline, as the Federal Reserve said the U.S. economy is gaining momentum and investors weighed earnings.

Nomura Holdings Inc. jumped the most in more than 10 months after Japan’s biggest brokerage posted quarterly profit that topped estimates and said it plans to buy back shares. Toyota Motor Corp. added 2.2 percent on a report the world’s largest carmaker may post record operating profit for the last fiscal year. Seiko Epson Corp. surged 18 percent after the stock was upgraded at JPMorgan Chase & Co. Kyushu Electric Power Co. and Hokkaido Electric Power Co. advanced after saying a state-backed bank will invest in the utilities.

The Topix added 1.7 percent to 1,182.20 in Tokyo, its highest close since April 7, with all but one of its 33 industry groups advancing. The measure slid 3.4 percent in April and is down 9.2 percent this year. The Nikkei 225 Stock Average gained 1.3 percent today to 14,485.13. The yen traded at 102.20 per dollar after rising 0.4 percent yesterday.

“The Japanese market is following the U.S.,” said Stuart Beavis, head of institutional equity derivatives at Vantage Capital Markets in Hong Kong. “Particularly the Fed comments that the economy is growing and will bounce back after a weather-related poor first quarter.”

The Dow Jones Industrial Average climbed to a record yesterday. The Standard & Poor’s 500 Index added 0.3 percent, with futures on the gauge little changed today.

Stimulus Outlook

The Fed pared monthly bond-buying to $45 billion from $55 billion yesterday and said it will keep trimming the pace of asset purchases as the economy shakes off the winter doldrums, putting the unprecedented stimulus program on course to end by the close of 2014. The central bank repeated it’s likely to keep the benchmark interest rate near zero for a “considerable time” after bond purchases end.

Growth “has picked up recently,” the Federal Open Market Committee said in a statement in Washington, hours after a government report showed gross domestic product barely expanded in the first quarter.

“The great thing about the U.S. situation now is that as soon as the economy shows weakness, instead of having to decide on new stimulus measures, they can just slow the pace at which they taper,” said Nobuyuki Fujimoto, a senior market analyst at SBI Securities Co. The media report on Toyota’s earnings “has brought relief to the whole market. Foreign investors are buying Japanese stocks today as they see the market as relatively cheap.”

Earnings Season

More than 200 Topix members release results this week. Of those on the gauge that have already posted earnings and for which Bloomberg has estimates, 66 percent beat analyst predictions for sales while 61 percent topped projections for earnings per share.

Brokerages rose the most among the Topix’s sectors as Nomura gained 6.3 percent to 625 yen, the biggest daily gain since June 10. Fourth-quarter net income fell from a year earlier to 61.3 billion yen ($600 million), beating analysts’ estimates for 41 billion yen. The company also said it plans to buy back as much as 2.6 percent of outstanding shares.

Toyota, the heaviest-weighted member of the Topix, advanced 2.2 percent to 5,639 yen. The automaker will probably report 2.3 trillion yen in operating profit for the past fiscal year, a record, amid revenue growth both at home and abroad, the Nikkei newspaper reported without attribution.

Seiko Epson

Seiko Epson jumped 18 percent to 3,290 yen, the most since November. The maker of watches and printers forecast full-year net income of 65 billion yen, exceeding analysts’ estimates for a gain of 54.2 billion yen. The company’s rating was raised to overweight from neutral at JPMorgan Chase.

Kyushu Electric and Hokkaido Electric will receive a combined 150 billion yen from the Development Bank of Japan Inc., joining Tokyo Electric Power Co. on the list of power producers to secure government aid. Kyushu Electric jumped 9.1 percent to 1,125 yen, while Hokkaido Electric surged 13 percent to 707 yen.

Japan will make significant cuts to corporate taxes by April 2015, Deputy Economy Minister Yasutoshi Nishimura said in an interview in New York yesterday. The nation’s effective rate of about 36 percent is the second-highest in the Group of Seven after the U.S. and compares with about 24 percent in South Korea and 23 percent in the U.K.

The Topix traded at 1.15 times book value today, compared with 2.64 for the S&P 500 and 1.88 for the Stoxx Europe 600 Index yesterday. Volume on the Japanese gauge was about 4.4 percent lower than the 30-day average today.

The Topix pared gains in the morning session after a report showed China’s official manufacturing Purchasing Managers’ Index came in at 50.4 for April, less than the 50.5 median estimate in a survey of economists. A reading above 50 signals expansion.

“Investors are nervous about China,” Vantage Capital’s Beavis said. “They are still worried about the growth story and banks’ credit quality as credit growth slows.”

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