Nikkei nears 8-month highs; insurers rally after US yields rise

[TOKYO] Japan's Nikkei extended its gains to near eight-month highs on Wednesday as investors took heart from a strong performance in Wall Street despite lingering trade war concerns, with financial stocks rallying after US yields jumped.

The Nikkei share average jumped 1.6 per cent to 23,804.65 in midmorning trade, the highest level since late January. If the Nikkei tops 24,129.34 hit on Jan 23, it will be the highest point since November 1991.

The broader Topix also notched a new milestone, rising 1.6 per cent to hit more than a three-month high of 1,787.36.

While foreign investors have been net sellers of Japanese stocks to the tune of 7.5 trillion yen so far this year, there are some bright spots, analysts said.

"The recent strength in the Japanese market has been led by futures buying, but as you can see in increased turnover, investors are buying Japanese cash stocks, too," said Shoji Hirakawa, chief global strategist at Tokai Tokyo Research Institute. "While the Japanese and US economies have been strong, there has been big gaps in share prices in these markets, so investors are unwinding their short positions now."

Analysts said the strong dollar-yen environment is also serving as a tailwind to Japanese exporters, though some think it is too early to be optimistic that long-only investors are investing in Japan.

"Whether mid-to-long term investors will start buying Japanese stocks is key," said Yutaka Miura, a senior technical analyst at Mizuho Securities.

Late Monday, US President Donald Trump announced that 10 per cent tariffs on US$200 billion in imports from China would go into effect next week, escalating the tit-for-tat trade spat between the world's two largest economies.

Mr Miura said that the Nikkei could see profit-taking when it nears the 24,000 mark.

Insurers and banks, which hunt for high-yielding products such as foreign bonds, extended their rally as US treasury yields rose.

Dai-ichi Life Holdings jumped 5.3 per cent, Sompo Holdings rallied 3.9 per cent and T&D Holdings surged 4.3 per cent after US benchmark 10-year and 30-year yields both climbed to fresh four-month peaks.

Mitsubishi UFJ Financial Group added 1.7 per cent and Sumitomo Mitsui Financial Group surged 2.0 per cent.

Exporters also rose, with Kyocera Corp adding 3.1 per cent, TDK Corp rising 3 per cent and Honda Motor Co advancing 2.4 per cent.

However, the utility sector underperformed, with Kansai Electric Power Co falling 3.8 per cent after it issued a profit warning.

REUTERS