Japan Shares Rally for Eighth Day as Topix Enters Bull Market

  • Topix rises 21% from February low as yen continues to weaken
  • Oil explorers lead gains amid increase in crude prices

Time to be Bullish on Japanese Equities?

Japanese shares extended their longest winning streak since August 2015 and the Topix index entered a bull market as the yen touched the lowest against the dollar in almost seven months.

The Topix index rose for an eighth straight day at the trading close in Tokyo, after the yen fell further after slipping 0.7 percent against the dollar in New York on Friday. The measure is up 21 percent from its February low, joining the Nikkei 225 Stock Average after it entered a bull market on Friday. Escalating expectations for a swift rate tightening in the U.S. have bolstered the greenback since Donald Trump’s election win, pressuring the yen lower and lifting investor sentiment for Japanese equities.

SecurityPercent ChangePrice
Topix+1.0%1,442.93
Nikkei 225+0.8%18,106.02
Yen-Dollar-0.1%111.04

“The high yield and weaker yen trend hasn’t changed, and now those who were late in joining the buying spree will tag along,” said Shoji Hirakawa, chief global strategist at Tokai Tokyo Research Institute Co. in Tokyo. “At the bottom of all this is, still, are expectations for U.S. President-elect Trump.”

The return to bull territory is a dramatic recovery for a market that sank at least 18 percent in the first half as the yen strengthened and investors lost confidence in Prime Minister Shinzo Abe’s ability to revive economic growth. Data on Monday showed Japan exports fell 10 percent in October from a year earlier, compared with estimates for an 8.5 percent decline.

Banks have underpinned the rally in Tokyo, together with exporters, as U.S. rate-hike expectations bolstered bond yields around the globe. The surge in borrowing costs was a reprieve for Japanese lenders that took a heavy beating after the Bank of Japan’s decision to introduce negative interest rates in January. Banks were up another 2 percent on Monday after rising 7.7 percent last week.

Oil explorers led gains for the day as crude extended its advance above $46 a barrel after Iran signaled optimism OPEC will agree to a supply-cut deal and Iraq said it will offer new proposals to help bolster the group’s unity before members meet next week in Vienna. Inpex Corp. climbed 3.2 percent.

Exporters were also on the rise. The world’s largest automaker Toyota Motor Corp. advanced 0.7 percent, to finish at its highest since early February. Toyota has trimmed its loss for the year to 15 percent, from as much as 34 percent. Sony Corp. climbed 2 percent, while Apple Inc. supplier Murata Manufacturing Co. rose 2.5 percent.

“Many are saying Japanese shares have risen too much in a short period of time, but if foreigners resume buying, odds are for stocks to rise more,” said Hajime Sakai, a fund manager at Mito Securities Co. “When in relation to Trump, Japan is in a good position to be bought compared with other countries, and foreign investors still have a big net sell position here.”

Foreign investors dumped almost a net $60 billion of Japanese equities this year through September. Foreigners have since purchased almost $7.3 billion, according to data compiled by Bloomberg.

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