Tokyo stocks rise

The Nikkei stock average eked out a tiny gain on Tuesday, extending its rally to a sixth session and hitting a fresh two-month closing high, helped by hopes of a slowly improving economic outlook but most players expect momentum to fade soon.
The Osaka Securities Exchange, Japan's second largest bourse, jumped 8 percent on a report that the Tokyo Stock Exchange has proposed a tender offer as the two proceed in merger talks. The Nikkei benchmark is hovering just below 10,000 and a clear break of resistance at 10,017.47, an intraday high marked on May 2, would pave the way for a test of a chart gap created immediately after the March 11 quake, with the gap lying at 10,050 to 10,254.
But most market players say that such a test is unlikely now amid signs of short-term overheating as about 90 percent of shares are now trading above their 25-day moving average. Generally, the market is considered to be overheated when 80 percent of shares trade above their 25-day average.
"Foreign investors who had bought at cheaper levels are taking profits at around 10,000. So the market is capped in the very short term," said Soichiro Monji, chief strategist at Daiwa SB Investments. If the chart gap was closed, this could be taken as a return to levels before the earthquake and radiation crisis but the outlook for the economy and earnings is not yet sufficiently encouraging, investors said.
"There are expectations of a recovery in corporate earnings. But exports haven't recovered that much. There's scope for disappointment," said Kazuyuki Murai, chief investment officer at Plaza Asset Management. The benchmark Nikkei finished 0.1 percent higher at 9,972.46. The broader Topix rose 0.1 percent to 865.18 after rising as high as 867.46, a three-month high. But it failed to close above its 200-day moving average at 867.02.
Longer-term, some investors are hopeful that a recovery from supply chain disruptions and improvements in consumer spending will help lift the Nikkei in the coming quarters. "Japanese shares were abandoned at ridiculously cheap levels," said Ryoji Musha, the president of Musha Research, saying that the market capitalisation of Japanese shares is less than 65 percent of GDP, compared to 130 percent in the United States.
Though the market capitalisation for Japanese shares has been consistently lower than the market cap for their US counterparts for the past two decades, what's striking is that it has hardly grown since the 2008 financial crisis, unlike rival indexes, Musha added. "This can only mean one of the following three possibilities. The Japanese economy will be completely left out in the global recovery, or to the contrary, the global recovery story is an illusion, or that the abnormal cheapness of Japanese shares will be corrected in the future," he added.
Shares in the Osaka bourse climbed 8 percent to 390,000 yen. The plan by the Tokyo exchange, the world's fourth largest bourse in terms of trading volume, includes buying all OSE shares to make it a wholly owned subsidiary, the Asahi newspaper said. The Jasdaq-listed OSE is set to reject the scheme, however, the report also said, suggesting a rocky road ahead for the ongoing merger talks.
Cellphone maker Uniden Corp surged 8.1 percent in its heaviest trade in recent years, after Bank Of America Merrill Lynch started its coverage at "buy" with a target price of 430 yen, saying the firm can generate an operating margin of more than 10 percent from its home appliance business.
But Fast Retailing fell 1.7 percent after its June sales rose less than the market expected, triggering profit-taking in the shares that had recovered to pre-quake levels back in May. Hopes had been high for the operator of the Uniqlo casual clothing chain to benefit more from demand for lighter clothing amid calls for air-conditioning to be turned down to save power. Trading volume was 1.82 billion shares, slightly above the average for the past six sessions of 1.78 billion. Decliners outnumbered advancers by 824 to 669 on the first section of the Tokyo Stock Exchange.