Friday, June 3, 2016

Stronger Yen Weighs on Nikkei


Shares Hit by Yen Strengthening Against Dollar

Winning streak of five meetings for Japan’s Nikkei ended as shares were hit by the yen strengthening against the dollar. Benchmark of Japan, Nikkei 225 index dropped down to 279.25 (1.6% at 16,955.73). Dollar slipped below 110 yen. For Japanese exporters, stronger yen is usually seen as negative.

This resulted due to the Japanese Prime Minister; ShinzoAbe’s announcement, to a delay of a planned rise in sales tax. The rise in sales tax rate to 10% from 8%, planned for the year 2017, has now been pushed back to 2019.In individual stocks, Softbank had increased by 0.4% after the Japanese technology firm had stated that it would be offloading $7.9bn worth of shares in e-commerce giant of China - Alibaba.

 The transaction is said to reduce the stake of Softbank in Alibaba from 32.2% to 28%. The Shanghai Composite, in China, had edged down from 0.1% to 2,913.51 while the benchmark Hang Seng index in Hong Kong ended 54.11 points less at 20,760.98. The S&P ASX/200 index in Australia had closed down 55.39 points (1% at 5,323.17). Kospi index of South Korea was even for most of the session, closing at 1,982.72.

Strength of Yen – Decline of Exporters

Asian stock markets were generally higher on Tuesday tracking gains in U.S. stocks but Nikkei was assessed by the recent strength of yen and weak earnings results. The S&P 500 on Monday which had settled at a record high of 1593.61, lifted by a rally in the technology segment and the earnings sustained to be the main focus in the region. Japan’s Nikkei Stock Average dropped 0.2% to 13.860.86amidst the recent weakness of the dollar as well as the key ¥100 level continued to be elusive.

The dollar-yen pair had been at ¥97.70 from ¥97.77 in New York, late Monday. Nikkei had jumped to 11.9% till April and continues on course for its largest monthly increase since December 2009 irrespective of Tuesday’s drop. The strength of yen together with the disappointing results had led to the decline of exporters. A heavily weighted component, Fanuc, on the Nikkei had dropped to 5.6% after the company had informed that its operating profits slipped by 17% on-year to ¥184.8 billion for the fiscal year ended March 31.

Abenomic Effect on Consumer Confidence 

Ricoh had dropped to 8.4% after its fourth-quarter operating profit had come in at ¥23.0 billion considerably losing guidance and consensus forecasts, apparently owing to a fall in sales of the domestic office equipment as well as larger-than-expected rise in costs. CLSA equity strategist Nicholas Smith, noticing the data for March indicating an increase in household spending and a fall in the jobless rate commented that `regardless of stock price weakness, the signs for Japans’ economy are positive. Some of the data can be attributed to the `Abenomics’ effect on consumer confidence’.

 Household spending had increased to 5.2% in March signifying consumers are showing more inclination to spend whereas unemployment had dropped to 4.1% of the labour force in March from 4.3% in February, which decline to its lowest since November 2008. Industrial production in March had increase by 0.2% on-month for the fourth straight month. Investors would be paying consideration to separate strategy meetings by the European Central Bank and the U.S, Federal Reserve for indications, later in the week.


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