Nikkei slightly lower

Japan's Nikkei dropped 0.9 percent in thin trade on Monday, with sentiment soured by a declining China market. "Selling in the Japanese market is due to external reasons, and as there are fewer foreign participants in the market, low volume is causing volatility," said Hideyuki Okoshi, general manager at Chuo Securities.
Losses in China-related stocks weighed on the market. Komatsu Ltd, which relies on China for about 20 percent of its sales of construction and mining equipment, shed 1.9 percent to 2,453 yen and Hitachi Construction Machinery Co was 2.1 percent lower at 1,937 yen.
Industrial robot maker Fanuc Ltd, whose share price has been lifted by growing demand in China, fell 1.8 percent to 12,150 yen. Uncertainty over Japan's political situation also dampened the mood of investors.
Japanese Prime Minister Naoto Kan said on Monday that ruling party powerbroker Ichiro Ozawa rejected a call to appear at a parliamentary ethics panel over a funding scandal, threatening to widen a rift in the fractious party. "Markets are watching out for the long-term implications of the feud closely. Prolonging the present situation without any clear outcome would be the worst outcome for the market," said Yumi Nishimura, a senior markets analyst at Daiwa Securities Capital Markets.
"The rivalry has already been dragging for some time, and if it continues to drag it will likely have strong negative implications for the government's policies next year," Nishimura said.
The Nikkei fell 87.42 points to 10,216.41, approaching support at 10,116.53, its 25-day moving average, a gauge closely followed by Tokyo investors. The broader Topix index declined 0.5 percent to 898.55. Asian shares eased, led by a drop of as much as 3 percent in China's key stock index as a shortfall of money flows ahead of the year-end in a tight monetary environment pressured the market.
After hitting its highest closing level since May last Tuesday, the Nikkei stayed flat for the rest of that week as domestic investors aggressively took profits on its rally of around 12 percent since the beginning of November, while foreign investors continued buying financial shares seen as undervalued. Looking ahead, analysts remain bullish about the performance of the Japan market. Kathy Matsui, chief Japan strategist at Goldman Sachs, predicts the Topix will likely surge 20 percent in the next six months.
Matsui recommends buying autos and tech stocks because profits will likely rise as the yen retreats against the dollar after reaching a 15-year high in October. "Many investors make the mistake of becoming too emotionally hung up on Japan's structural problems and therefore they miss the cyclical opportunities," said Matsui. "If you have the stars aligned with a better US economy, a weaker yen, earnings going back to 2007 peaks and very underweight foreign investors, that could easily deliver 15-20 percent."
Trading volume was the lowest since December 6, with 1.7 billion shares changing hands on the Tokyo Stock Exchange's first section, 19 percent lower than last week's closing average of around 2.1 billion shares.
Market players said volumes may dry up further this week as foreign investors who have been net buyers of Japanese equities for the last six weeks, helping push the index higher, will be less active as the Christmas holidays approach.
Sony Corp dropped 1.2 percent to 2,930 yen after it said it was likely to fall slightly short of its ambitious 25 million unit LCD TV sales target for the year to March 2011. Supermarket operator Uny Co Ltd fell 4.2 percent to 778 yen after Macquarie Securities cut its rating to "underperform" from "neutral." But baby goods maker Pigeon Corp rose 4.3 percent to 2,847 yen after Credit Suisse started coverage of the company with an "outperform" assessment. Honda Motor climbed 1.4 percent to 3,280 yen after saying on Friday it would target sales in China of 730,000 vehicles in 2011, for growth of more than 10 percent from the 650,000 estimated for this year.