Japan's Nikkei average gave up gains on Monday as investors snapped up profits on recent climbers, prompted by a slump in Chinese equities after China raised reserve requirements for banks. But a positive mood largely remained intact as stronger than expected earnings at J.P. Morgan raised expectations for top US banks, many of which report this week, including Citigroup and Goldman Sachs.
The Nikkei was stuck in a tight range as resource- and energy-related stocks gained on higher oil and commodity prices, but there was a fall in construction machinery makers with big exposure to China, such as Komatsu Ltd. "Both the Shanghai and Hong Kong markets opened lower on Monday, souring the mood on the Nikkei. The CPI figures due on Thursday are also making markets a little jittery," said Hideyuki Ishiguro, a supervisor in the investment strategy section of Okasan Securities.
Although economists polled by Reuters said the consumer price index in China, which is Japan's biggest trade partner, may show a cooling of inflation from November's 28-month highs, they also reckoned any slowdown in inflation would likely be temporary.
Komatsu, which relies on China for about 20 percent of its sales of construction, mining and utility equipment, shed 1 percent to 2,513 yen and Hitachi Construction Machinery was 1.3 percent lower at 2,018 yen. The benchmark Nikkei ended the session up 3.82 points at 10,502.86.
Resistance for the benchmark now looms at 10,620.57, an eight-month peak hit last week, market players said. If that level is breached, the next target investors are eyeing is 10,638.23, a high hit in May last year. The broader Topix index shed 0.2 percent to 928.73.
Investors took profits on sectors outperforming a recent rally in the Nikkei, such as banks, which have surged 23 percent over the last 10 weeks, as foreign funds aggressively added laggard financial shares. Mizuho Financial Group dropped 0.6 percent to 168 yen. But market players said that buying by foreigners would likely continue. The Nikkei has climbed 2.6 percent this year and is up 15 percent since the start of November after foreigners changed their stance on Japanese stocks to neutral from underweight.
"Foreign buying will probably continue further as expectations for Japanese firms to post strong results have been heightened by robust US earnings," said Fumiyuki Takahashi, an equity strategist for Barclays Capital Japan.
Results from Apple, due on Tuesday, are a key immediate focus for the market. Economic bellwether General Electric as well as big tech names such as Google and eBay are also due to report. "Foreigners have been buying domestic demand-related shares like banks and property recently, but they may switch back to exporters if the yen stays stable and if we see some more solid earnings announcements in the US high-tech sector." Shares of non-ferrous metals smelters also rose as copper prices climbed $10 on Monday, flirting with record highs. Dowa Holdings Co advanced 1.3 percent to 556 yen. Trading volume dropped, with 1.9 billion shares changing hands on the Tokyo Stock Exchange's first section, below last week's closing average of 2.3 billion. Advancing issues outpaced declining ones by 779 to 702.