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Japan

May 2012

  • The Topix index loses ground.
  • Exporters are negatively affected by the rising yen.
  • The Bank of Japan adds to its asset purchase programme.

Japanese equity markets were down over April, giving back some of their impressive first-quarter gains. The Topix index fell 5.86% in yen, total return terms. Retail and food companies turned in the best performances, while banks and energy resources were the month’s laggards.

As ever, the yen’s manoeuvres against foreign currencies – particularly the US dollar – were keenly observed by investors. Japan has an export-led economy and the share prices of companies who sell goods abroad are heavily influenced by exchange rates, with a stronger yen putting off overseas buyers.

Exporters were therefore in the doldrums in the early days of March, as the yen rose against the dollar. There were brief periods of respite, but the Japanese currency pushed still further ahead after the Bank of Japan increased its asset-purchase and loan scheme by ¥10 trillion towards the end of the month. The BoJ’s move aims to persuade investors that it is committed to meeting inflation targets and bolstering the country’s economy.

In corporate news, Sony found itself in a spin after announcing plans to cut 10,000 jobs. Facing additional tax charges in the US, the company said it would post a net loss of ¥520 billion for the year to end-March, causing its share price to fall. Videogame producer Nintendo also ended the month on a weak note, posting its first annual loss in decades.

Finally, April’s economic data were mixed. Industrial production rose just 1% last month, failing to meet expectations of a 2.4% increase. A surge in retail sales provided some cheer, however. The 10.3% gain in March (compared to a year earlier) was significantly ahead of estimates. The rise was attributed to increasing demand for new cars.

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