The Nikkei average closed at a three-month high on Monday, shrugging off a disappointing earnings season for Japanese firms as robust jobs data boosted confidence in an economic recovery in the United States. The forecast-beating jobs numbers have lowered the chance of further stimulus by the US Federal Reserve and supported the dollar against the yen.
"This time around, you are likely to get global trade growth at the same time as a weaker yen and playing on strong operational gearing. Both together should be pretty good for corporate profits," said Nicholas Smith, Japan strategist at CLSA. Japan's quarterly corporate earnings have generally been weak so far. Out of 109 Nikkei companies that have reported, two thirds of them failed to meet market expectations, Thomson Reuters StarMine data showed. That compares with just one-third of S&P 500 firms.
Smith recommended investors buy automakers and Nomura Holdings to tap into the better growth picture. Toyota Motor Corp, Nissan Motor Co and Honda Motor Co rose between 2.9 and 3.3 percent, while Nomura added 3.1 percent and Mitsubishi UFJ Financial Group climbed 1.6 percent.
The Nikkei advanced 1.1 percent to 8,929.20 and the broader Topix added 1.2 percent to 769.85. Some market participants were cautious on the benchmark's ability to gain further, however. "I am rather surprised that the Nikkei has managed to maintain this level," said Fumiyuki Nakanishi, general manager of investment and research at SMBC Friend Securities.
"For the benchmark to rise above 9,000, there needs to be a resolution out of Greece and for US economic data to remain strong. But if we are talking about Japanese firms, it's difficult to see a v-style recovery considering the viability of their cost cuts and restructuring measures, as well as the strong yen." Trading volume on the Topix dipped, with 2.18 billion shares changing hands, down from 2.33 billion on Friday.
Among blue chips, Panasonic Corp surged 6.3 percent to the top of the Topix core 30 list as investors bought back the battered shares after it warned of a record annual $10.2 billion net loss. Masahiro Ono, an analyst at Morgan Stanley MUFG Securities wrote in a report to clients on Friday, "While it is still premature to price in the firm's growth strategies, we see current share price levels as the bottom for now, as the goodwill amortisation announced with 3Q is likely to be the last of a series of factors causing erosion to shareholders' equity for sometime."
Others also made robust gains on the back of US jobs and factory orders data. Nikon Corp soared 11.2 percent to end near a 21-month high after it doubled its net profit forecast for the year to March. Fink said automakers had rebounded sharply this year on improving signs from US markets, but other cyclical sectors, such as electronics, and glass and ceramics had lagged.
Tokyo Electron Ltd, a semiconductor equipment maker, tumbled 8.2 percent to be the top-weighted loser on the Nikkei after it forecast orders would fall below 100 billion yen for the January-March quarter, compared to around 150 billion yen the quarter before. Elpida Memory Inc slipped 3.2 percent. The death of Steve Appleton, the CEO and chairman of rival Micron Technology Inc on Friday cast doubt over the US company's possible acquisition plans for the troubled Japanese company.
Deutsche Bank said domestic investors were net sellers of Nikkei futures contracts by 38.1 billion yen ($497.49 million) last week, while foreign investors were net buyers of stocks by 43.7 billion yen and Nikkei futures contracts by 115.4 billion yen.