Japanese Shares Rally to Highest Since February on Yen Losses

  • The Topix rises 19% from February low, nearing bull market
  • Mitsubishi UFJ leads bank stocks higher as bond yields climb

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Shares in Tokyo rose, closed at the highest level since February and flirting with a bull market, as a weaker yen buoyed exporters and banks surged amid a global rebound in borrowing costs.

The benchmark Topix index is less than 15 points away from reaching 1,435.54, which would represent a 20 percent increase from a low reached Feb. 12. After hitting a near three-year high against the dollar in August, the yen has been pulling back, allowing investors to regain appetite for Japanese equities that are heavily reliant on export earnings. As investors increasingly bet on the likelihood of faster-than-expected interest-rate increases in the U.S., optimism is spreading for a long-awaited earnings recovery in corporate Japan.

SecurityPercent ChangePrice
Nikkei 225+1.1%17,862.21

“It’s gradually turning to a bull market,” said Yoshinori Shigemi, a global market strategist at JPMorgan Asset Management in Tokyo. “There are two factors: one is faster growth in the U.S. economy, and another is a stronger dollar, meaning a weaker yen.”

Tokyo stocks have been staging a recovery, faring the best among Asian gauges following the U.S. election as the yen tumbled to its lowest since June. A 20 percent gain from a low signals the starting point of what is viewed as a bull market.

Yen Drop

Much of the rally has been fueled by the Japanese currency’s demise. The yen has fallen almost 4 percent in November, on course for its biggest monthly decline since May, after Donald Trump’s surprise U.S. election win last week propelled speculation over expansive fiscal stimulus measures and swifter rate increases by the Federal Reserve.

Traders put the odds of a December rate hike by the Federal Reserve at 94 percent as of Tuesday, up from 68 percent at the beginning of this month. Adding to the case for higher U.S. rates, retail sales were better-than-expected in October and an index of November manufacturing in the New York region unexpectedly rose.

Japanese banks drove the latest Tokyo rally, with a gauge tracking lenders climbing 5.1 percent on Wednesday. Mitsubishi UFJ Financial Group Inc., the country’s largest bank, jumped 6.2 percent. Banking stocks have been resurgent, riding on a global rebound in bond yields that has seen lenders return to levels touched before the Bank of Japan’s unprecedented move to adopt negative interest rates in January. Japan’s 10-year bond yield rose to zero for the first time in almost two months on Tuesday amid a global debt-market selloff following Trump’s victory.

Exporter Earnings

A comeback in exporters of electrical appliances and automakers also underpinned the Topix’s gain. The world’s largest carmaker, Toyota Motor Corp., added 2 percent and Mitsubishi Electric Corp. increased 2.9 percent. Auto shares are now down 17 percent year to date after falling as much as 34 percent.

The Topix is down 8.1 percent in 2016 after the gauge tumbled into a bear market early this year amid a global selloff, losing as much as 23 percent from the start of the year to its February low. A combination of the yen’s strength and the BOJ’s negative-rates policy blurred the outlook for corporate profits, dealing a blow to local equities.

“The yen’s dip to levels around 109 to the dollar is lifting hopes for better earnings from exporters,” said Seiichi Miura, a strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo. “Many companies were reviewing adjusting their foreign-exchange rate bases to reflect a stronger yen, but with the currency trading where it is now, we could anticipate an upward revision to earnings for the year.”

— With assistance by Hideki Sagiike

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