Japan's Nikkei share average dropped on Monday as profit-taking from domestic investors mounted near key chart levels and as Asian shares slipped on disappointment after China announced its lowest annual growth target in eight years. Selling from Japanese institutional investors could cap gains in the Nikkei in coming weeks ahead of their book closing on March 31, though the yen's decline last month is seen providing support, market players said.
The benchmark Nikkei fell 0.8 percent to 9,698.59, slipping from Friday's seven-month closing high of 9,777.03 while the broader Topix index shed 0.6 percent to 832.86. After a stellar 10.5 percent rally last month, the Nikkei has stalled around 9,800 points with technical resistance seen near 9,838 - a 61.8 percent retracement of its fall from February to November last year. Selling from Japanese investors has also gathered pace any time the Nikkei is above the value at which they marked shares last March to market - its March 31 close of 9,755 for some, or the monthly average last March at 9,852.
"Above these breakeven levels, we face tons of selling from Japanese investors," said Norihiro Fujito, a senior strategist at Mitsubishi UFJ Morgan Stanley Securities. Market participants said concern over a sharp pullback mounted after the Nikkei's rally last month, which was its best February performance in decades.
"Domestic institutional investors are locking in profit around current levels and are winding down their positions ahead of the end of the business year," said Fujio Ando, senior managing director of Chibagin Asset Management. "For the next week or two, I don't expect the benchmark to go much higher. Lifers and non-life insurance are selling. The fact that foreign investors aren't selling yet is supporting the market." Market sentiment was dented further after Chinese shares fell as Premier Wen Jiabao cut the country's 2012 growth target to 7.5 percent from the longstanding 8 percent.
Investors took profits in recent gainers, including exporters that recovered last year's losses in a recent rally, as well shippers and steelmakers. Panasonic Corp fell 2.2 percent and Sony Corp dropped 3.3 percent. The iron and steel subindex shed 2.5 percent, the worst sectoral performer on the main board. Nomura said in a report that low-beta sectors that had missed out on the recent rally were supporting the market, while high-beta stocks such as energy resources and steelmakers had entered a period of correction.
"This is something we see typically at the final stage of a rally as those who have missed the chance to enter buy defensive and other laggard shares," Soichiro Monji, chief strategist at Daiwa SB Investments, added.
"The bottom rung of the stepladder is hardly a place to get vertigo," said Nicholas Smith, Japan strategist at CLSA. "The weakness in the yen continues to surprise and we've got valuations behind this and reconstruction spending pushing on the global economy. It looks like a country where the year-ago hurdle is so low you'll have to be a limbo dancer to get under it. Conditions look pretty good to me." The Nikkei has gained 15.3 percent so far this year, boosted by a run of US economic data suggesting a robust recovery in the world's largest economy, and accommodative policies by global central banks that have pushed investors back into risk assets.
Trade volume was 1.92 billion shares, about 25 percent below last week's average. Advancers were outnumbered by decliners by 1 to 2. Investors offloaded chipmaker Tokyo Electron Ltd, which was down 3.5 percent, after it said it would buy Oerlikon Solar, a unit of Swiss Oerlikon Corp AG, for 22.5 billion yen ($275 million) to make solar cell equipment a core business.