Japanese markets started off the year in confident mood, with a weak yen underpinning a 0.74 per cent rise in the Nikkei 225 index in a half-day session that ended on an eight-month high.
In the first session of the year since Friday, carmakers and electronics makers - both of which make most of their profits abroad - rose strongly on hopes that the yen might remain weak for some time.
The Bank of Japan left interest rates at 0.25 per cent in its December policy board meeting, preserving the wide interest rate differential with the US and Europe. Even though there is speculation of another ¼ point rise, the central bank has made clear it will raise rates only very gradually over the coming year, a policy that could keep the yen relatively weak for much of 2007.
The Japanese currency remained above Y119 to the dollar, slightly stronger than the two-and-half month low of Y119.68 it reached in New York on the previous day.
The Nikkei 225 rose 127.84 points on Thursday to 17,353.67, while the broader Topix index added 17.88 points, or 1.06 per cent, to close at 1,698.
Japanese markets performed poorly compared with their international peers last year after a very strong 2005, raising expectations among some traders of healthy gains in 2007. This year, the economy is expected to grow for the sixth straight year.
Masaaki Kanno, chief economist of JPMorgan in Tokyo, said: “Markets seem to underestimate the strength of corporate profits, especially for 2006.” He said he expected an upward revision of second-half profits, plus a continued strong performance of exporters based on a relatively weak yen, would be “very positive for markets”.
Eventually, he said, higher profits would spill over into wages and stronger household spending, a benign economic scenario that has so far proved elusive.
Toyota, which is on track to become the world’s biggest carmaker this year, rose 1.8 per cent to Y8,110, a closing high. Honda ended the session up 1.1 per cent at Y4,750, while Nissan, Japan’s second-largest carmaker, rose 1.4 per cent to Y1,454.
In electronics, Matsushita shrugged off a patent challenge to its Bluetooth technology, rising 2.3 per cent to Y2,430. Sony, the world’s second biggest electronics maker, added 1.8 per cent to 5,190.
Hitachi gained 6.1 per cent to Y787 on hopes for its power generation joint venture with General Electric of the US, after signs that Japanese power companies are making inroads into international markets, including China and Russia.
NTT DoCoMo was another strong performer, rising 3.2 per cent to Y194,000 on reports in the Nikkei newspaper that it planned to hold down costs on building its “super” 3G network.
Petroleum related stocks were among the losers, after futures prices of crude oil dropped below $60 overnight in New York. Idemitsu Kosan, an oil refiner, fell 2.84 per cent to Y11,640, while Japan Petroleum Exploration was down nearly 2 per cent to Y6,940. Mining stocks were also down.