Nikkei Heads for Biggest 2nd Half Gain in More Than 50 Years

[HenryTo]

Even assuming that Japan is really on the road to recovery, it still seems that this rally may be a bit overdone.
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Nikkei Heads for Biggest Second-Half Gain in More Than 50 Years

Dec. 29 (Bloomberg) -- Japanese stocks advanced, driving the Nikkei 225 Stock Average toward its biggest second-half rally in more than half a century.

Exporters including Sony Corp. and Toyota Motor Corp. gained after reports showed consumer confidence and retail sales in the U.S., Japan's biggest export market, rose more than expected.

Retailers such as Seven & I Holdings Co. rebounded from losses yesterday on expectations a recovery in spending will boost profit. Shimamura Co., which sells women and children's clothes, said profit surged as same-store sales more than doubled.

``Technology shares got a boost from the solid U.S. outlook as they are sensitive to the global economy,'' said Takeshi Yamaguchi, who helps manage about $674 million at Sumitomo Mitsui Asset in Tokyo. ``Looking at Japan's economic recovery, it is obvious that retailers will post further gains.''

The Nikkei advanced 149.59, or 0.9 percent, to 16,344.20, the highest since Sept. 20, 2000, at the 3 p.m. close in Tokyo.

The Nikkei has advanced 41 percent in the second half of 2005, the most since a 47 percent second-half surge in 1952, the year that the U.S. formally ended its occupation of Japan following its defeat in World War II.

The Topix index gained 9.83, or 0.6 percent, to 1663.75.

With one day of trading left in 2005, the Nikkei has surged 42 percent this year, the biggest gain since climbing 44 percent in 1986. The Topix has jumped 45 percent, the most since 1999.

[HenryTo]

Sorry for the late reply - been in bed all day - for some reason, I only get sick during the holidays.

Most of the buying in the Japanese equity markets are foreign buying - and the Americans and the Europeans are mostly either funding those purchases by borrowing yen or buying them with currency hedges in place. This is one reason why the Yen has been going down.

Another reason is that Japanese pension funds have been taking off their U.S. dollar hedges of their U.S. Treasury purchases - thus driving up the U.S. dollar against the Japanese Yen further.

A third reason is speculators and trend followers. The 2% one-day rise in the Yen a couple of weeks ago definitely caused some pain for them - as can be seen in the latest COT report where many of those who shorted have either covered or have been wiped out. A friend of a friend who were overextended on one side was wiped out that day. I did not find out how overextended she was until after the fact, though.

The boat is definitely too tilted to one side right now. You have both foreigners and domestic investors driving the Yen down - as well as speculators trying to coat-tail on this downtrend. My guess is that once the Nikkei starts correcting, the Yen will embark on a new uptrend. Domestic investors will then repariate their capital from overseas and buy the Nikkei on the way down - thus reinforcing that trend. Pension funds will also see their one-year gain (4.5% on the U.S. Treasuries) wiped out in a couple of weeks and will also repariate their capital and will probably invest these funds in a combination of the JYGB and Japanese equities, especially retailers and banks (don't invest your money in exporters).

Given the historical "upside volatility" of the Yen, anyone would be crazy (unless it is a currency hedge) to be short the Yen here - especially against the Euro.

[rffrydr]

We thought the Y carry-trade had broken but here we are at anohter high in Nikkei. Maybe currency m9ve is fakeout accounting move at year-end. i.e. hedge funds.

But it's been 15years in Japan. Can't say they aren't due.
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Today is the Tomorrow you worried about Yesterday!

[nodoodahs]

Do you think the action in the Nikkei may be the flip side of some kind of currency trade?
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.