Nikkei rises 0.34 per cent on rate doubt effect

Tokyo, Jan 17: The Nikkei average gained 0.34 percent on Wednesday as real estate firms, including Mitsubishi Estate Co. Ltd. advanced on fading expectations for an imminent interest rate rise, offsetting losses in bank stocks.

High-tech shares such as Tokyo Electron Ltd., hit earlier by a downbeat earnings report from chip giant Intel Corp., regained some ground as investors bought on dips.

Investors also bought shares of exporters such as Nikon Corp. as the yen fell to a 13-month low against the dollar after media reports said the Bank of Japan was likely to hold interest rates steady this week, dousing widespread expectations for a rise.

''If the Bank of Japan decides to leave interest rates unchanged, it would be basically positive to the stock market as a whole,'' said Soichiro Monji, chief strategist at the equity management department of Daiwa SB Investments, adding that the yen will likely stay under pressure without a rate rise.

Japanese exporters benefit from a weak yen, as it inflates profits when overseas earnings are brought home.

Market players have used the low-yielding Japanese currency as a source of funds to purchase higher-yielding currencies in the carry trade. The dollar rose to 120.88 yen on electronic trading platform EBS, its highest since December 2005.

Yasuo Yabe, director of sales at Meiwa Securities, said that if the Bank of Japan keeps interest rates steady amid opposition to a hike from some ruling Liberal Democratic Party (LDP) politicians, the decision might hurt the central bank's credibility and disappoint market participants.

''Opaqueness in the policy-setting process is what market participants dislike,'' he said.

The Nikkei ended the day up 58.89 points at 17,261.35. The broader TOPIX index rose 0.19 percent to 1,706.76, its highest close since May last year.

REALTORS UP, BANKS FALL

Mitsubishi Estate rose 2.9 percent to 3,240 yen as investors bought back shares of the real estate company on waning expectations for a rate rise. Higher interest rates are negative for earnings of real estate firms as they depend heavily on borrowing from banks.

The real estate sector was the largest percentage gainer among the TOPIX's 33 industry sub-indexes, with Sumitomo Realty&Development Co. Ltd. gaining 2.1 percent and Mitsui Fudosan Co. Ltd. rising 1.9 percent.

Bank shares, which had been lifted by expectations that higher interest rates would improve their lending business, retreated after media reports said the central bank was unlikely to raise rates this week.

Many investors had thought a BOJ rate rise to 0.5 percent this week was a done deal in the run-up to the central bank's two-day policy meeting ending on Thursday.

But the reports said that the BOJ wanted to take more time to assess the strength of consumer spending, the economy's soft spot, and wait to see more signs of a pickup in consumer prices.

Mizuho Financial Group Inc. fell 0.2 percent to 898,000 yen while Sumitomo Trust&Banking Co. Ltd. lost 1.1 percent to 1,309 yen.

Shinsei Bank Ltd. fell 6.1 percent to 706 yen after it cut its full-year profit forecast by 47 percent on Tuesday, citing higher provisions to cover restructuring costs and possible legal claims against its consumer lending unit Aplus Co. Ltd.

Trade was relatively active with 2.2 billion shares changing hands on the Tokyo exchange's first section, above last year's daily average of 1.93 billion shares. Advancing shares and declining ones stood almost in line at 781 to 766.

REUTERS

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