Tokyo: Japan’s Nikkei average fell 2.5% on Monday, pushed lower by Canon Inc and other exporters after the dollar hit a fresh seven-month low against the yen in early trade. But Japan Airlines (JAL) climbed nearly 7% following news that the struggling airline was in talks on investment by American Airlines and Delta Airlines.
The dollar fell to a seven-month low below ¥90.21 in early Asian trade, helped by talk of Japanese fund repatriation and the view that it is replacing the yen as the funding currency for carry trades. It later pared some of its losses to be 0.3% lower at ¥90.40.
“These dollar levels are making things very tough for the stock market -- not so much in the short term necessarily, but in the negative impact it could have on earnings estimates for later in the year,” said Noritsugu Hirakawa, a strategist at Okasan Securities. “This raises the possibility that widely anticipated upward revisions in a number of estimates for the second half could end up being fairly small-scale at best.”
Though there is likely to be a fair amount of variation, Hirakawa said he thought a lot of major manufacturers had a break-even level of around ¥95. Market players fret that the yen’s rise against the dollar could hurt the outlook for corporate earnings, as as stronger yen cuts into the value of exporters’ overseas profits when they are repatriated.
“The fact that the Euro is still holding its ground will help support the market a bit, but the dollar certainly does not seem to be heading in a good direction,” said Hiroaki Osakabe, a fund manager at Chibagin Asset Management.
The benchmark Nikkei fell 257.70 points to 10,186.63, while the broader Topix lost 2% to 931.53.
Support for the Nikkei is seen at 10,100, around where its 50-day moving average comes in, and then at 10,000 -- the level of its 75-day moving average as well as being an important psychological support level.
Should it break below this, the next support is at 9,800, where the 100-day moving average lies.
“If the Nikkei were to break below 10,000, the mood in the market would change quite a lot,” said Osakabe.
Uncertainty about the policies of Japan’s new government, to take office on Wednesday, appeared to be keeping some players sidelined, though the impact was unlikely to be strong.
Victory in a 30 August election handed the novice Democratic Party of Japan the reins of government and the job of reviving a struggling economy, ending half a century of almost unbroken rule by the Liberal Democratic Party.
JAL rose 6.8% to ¥174, outperforming the air transport subindex, which rose 2% to become the biggest gainer among the subindexes.
JAL, Asia’s largest airline by revenues, lost about $1 billion last quarter and has been seeking investors to prop up its finances for a state-supervised overhaul expected to include job cuts, a reduction in routes and asset sales.
“There’s a bit of concern about various issues involved with these possibilities, but at least JAL now looks unlikely to fail, and that’s being taken positively by the market,” Yamagishi added.
Broad selling hit most sectors, with only the air transport and sea transport sub-indexes in positive territory.
Among exporters, Toyota Motor Co fell 2.1% to ¥3,760, Canon dropped 3.6% to ¥3,440 and Honda Motor Corp lost 2.8% to ¥2,785.
Davinci was untraded with a glut of sellers at ¥12,350, down ¥2,000 or 14% from Friday’s close of ¥14,350 after the real estate investor said it was likely to give up control of a large office building in Tokyo as it faces problems raising funds to repay debts.
Trade fell off slightly, with 908 million shares changing hands on the Tokyo exchange’s first section compared to last week’s morning average of 1.1 billion.
Declining shares outnumbered advancing ones by about 9 to 1.