Japanese Stocks Tank Tuesday after Sea Day Holiday (EWJ)

Trading in Tokyo got off to a weak start following yesterday's national holiday. By closing, the Nikkei 225 Stock Average had fallen over 400 points to lose 2.75%. Not a single stock that has ADRs closed in the black. The dollar has also strengthened against the yen, meaning heavier losses for holders of Japanese ADRs and ETFs. It's the same story in Tokyo as in New York where tensions in the Middle East and rising oil prices are keeping downward pressure on stocks.

Among the worst performing stocks on the day in Tokyo:

Nissin (NIS) -10.0%, 63 yen
Internet Initiative Japan (IIJI) -5.79%, 342 thousand yen
ORIX (IX) -5.18%, 24,730 yen
Nomura Holdings (NMR) -4.11%, 1,937 yen
NEC (NIPNY) -4.05%, 545 yen
Matsushita Electric Industrial (MC) -3.92%, 2,085 yen
Mitsubishi UFJ Fin Grp (MTU) -3.80%, 1.52 million yen
Canon (CAJ) -3.64%, 5,290 yen
Sony (SNE) - 3.55%, 4,620 yen
Kubota (KUB) -3.50%, 964 yen

iShares MSCI Japan Index ETF (EWJ) 1-year chart:

Comments

[pascal jeannenot]

18th day's fall was pretty surprising to say the least but I do not think tensions in the Middle-east nor Korean Missiles crisis are the real culprit (it sure keeps pressure on Japanese stocks but limited..). The 18th fall was obviously not triggered by real fundamental negative elements. A large chunk of investors (hard believers in the fact that Japanese stock market is mostly driven by foreign investors) seem to follow the herd instinct . For now those investors sole readable scenario is : US economy cycle excess supply >tightening&... fall>weak earnings> stocks renewd falls etc....with financial easing again in the very end. Take it upside down if you want but it does not translate in a stocks uptrend
Of course such scenario certainly does not feet in Japanese current economic cycle nor a substancial part of domestic investors. But the relative absence of those very Japanese domestic players recently (individuals, institutions, investment trusts) made it easier for future traders to take the lead in short term (remember 1987). This said even for those seeking technical double bottom there was absolutely no reason to push it that far ! so contrarian I shall remain.
Tough time for the contrarian real value investor to maintain cruise speed but nevertheless pretty good timing.
Now coming back to your previous article on Gaijin/ Japanese view gap I would have indeed numerous comments to make, maybe later I shall devevelop further this interesting point.

2006 Jul 19 09:11 AM

[Steven Towns]

Pascal -- I agree, the herd instinct definitely hurt Japanese stocks yesterday. Of course we can't deny the external pressures such as the events unfolding in the Middle East.

Over the remainder of the year and into '07 it will be important for those looking for upside in Japanese indices to have more buyer participation from domestic institutions and retail investors. I think we'll see this happen with a strong earnings season beating conservative forecasts. Hopefully there are no warnings based on lower expectations from a weaker U.S. economy. Ideally there will be upward revisions made by autumn and we also experience a yen rally that further boosts dollar-purchased Japan investments.

In recent months I've noticed a strong correlation between Tokyo and NY indices. This worries me because Japan should not necessarily be affected as directly given its improving domestic demand and energy efficiencies; however, as you pointed out, there is a lack of domestic players.

Speaking on behalf of Seeking Alpha readers, we look forward to your insight on Gaijin/Japanese view gap whenever you get the time.

2006 Jul 19 10:01 AM