Japanese Stocks Surge a 2nd Day on U.S. Car Sales, Production

By Masaki Kondo

April 2 (Bloomberg) -- Japanese stocks surged, sending the Nikkei 225 Stock Average to a near three-month high, as better- than-expected auto sales and indicators in the U.S. stoked speculation the world’s biggest economy is recovering.

Honda Motor Co. and Nissan Motor Co. soared more than 10 percent after U.S. car sales in March rose from a 27-year low. Machinery maker Komatsu Ltd. jumped 5.8 percent as a U.S. manufacturing measure increased for a third month. Sony Corp. surged 9.2 percent on speculation tax changes will reduce its loss this year. Mizuho Financial Group Inc. climbed 8.9 percent after U.S. Treasury Secretary Timothy Geithner said there are “encouraging signs” in the financial market.

The Nikkei 225 climbed 367.87, or 4.4 percent, to close at 8,719.78 in Tokyo, the highest since Jan. 9 and bringing its two-day gain to 7.5 percent. The broader Topix index rose 32.87, or 4.1 percent, to 826.69, with almost seven stocks advancing for each that fell.

“The bottomless deterioration we’ve seen is now over,” said Yoji Takeda, who manages the equivalent of $1.1 billion at RBC Investment (Asia) Ltd. in Hong Kong. “I’m shifting to cyclical shares, including automakers and financials, from defensives to reflect a possible recovery.”

The Nikkei has climbed 24 percent from a 26-year low on March 10, narrowing this year’s loss to 1.6 percent, as confidence increased in government and central bank efforts to boost growth and lending. The trading volume for Topix’s members jumped to the highest level since Dec. 12.

U.S. Auto Sales

U.S. car sales fell 37 percent in March from a year earlier, though they rose from February’s 27-year low. Toyota Motor Corp. posted a 39 percent drop in U.S. sales last month, narrower than an estimated 41 percent tumble. Sales at Honda and Nissan fell 36 percent and 38 percent respectively, whereas analysts had projected a 42 percent slump for both companies.

Honda, Japan’s No. 2 automaker, advanced 11 percent to 2,735 yen, and Nissan, the No. 3, soared 14 percent 438 yen, the sharpest gain since Oct. 30. Toyota, the largest car manufacturer globally, gained 5.5 percent to 3,450 yen, the highest close since Nov. 10.

The Standard & Poor’s 500 Index climbed 1.7 percent in New York after the Institute for Supply Management said its factory index increased last month from the previous month, while a gauge of U.S. home resales unexpectedly rose in February.

Komatsu, which derives a quarter of its sales from the Americas, added 5.8 percent to 1,182 yen. Fanuc Ltd., a robot maker that gets almost a fifth of its sales from the Americas, jumped 7.6 percent to 7,250 yen. Canon Inc., the world’s biggest digital-camera maker, rose 4 percent to 3,010 yen.

‘No Choice’

“The market is responding to the signs the global economy is bottoming out,” said Tomokatsu Mori, chief fund manager at Fukoku Capital Management Inc., which manages about $9.84 billion. “Investors globally are increasing their allocations of equities, and because Japan has such a big market cap, they have no choice but to buy Japanese stocks.”

Sony, the world’s second-biggest maker of consumer electronics, climbed 9.2 percent to 2,320 yen. A change in Japan’s corporate tax code may boost earnings for Sony, Toyota and other companies as it exempts levies on dividends paid from overseas units to parents, the Nikkei newspaper reported today.

The change is “surely a positive factor” for Sony’s earnings, though it’s uncertain how much of the 90 billion yen ($912 million) in provisions it set aside for the taxes last fiscal year can be saved, spokeswoman Mami Imada said.

Soaring Valuations

The Nikkei’s climb since March, along with falling profit estimates, has driven up its price-to-earnings ratio to 274 times, compared with the S&P 500 Index’s 14 times, according to Bloomberg data. The Nikkei’s relative strength index, a measure of how rapidly shares have risen or fallen, reached 65 today, nearing the 70 threshold some traders regard as a sign to sell.

“Overseas investors never ignore valuations and the Nikkei’s high P/E will weigh on the market once people cool their heads,” Norihiro Fujito, senior investment strategist at Tokyo-based Mitsubishi UFJ Securities Co., wrote in a Japanese- language report yesterday.

Mizuho, Japan’s No. 2 listed bank, jumped 8.9 percent to 208 yen, and smaller competitor Sumitomo Mitsui Financial Group Inc. rose 7.4 percent to 3,770 yen. Nomura Holdings Inc., the nation’s top brokerage, gained 10 percent to 563 yen, the steepest leap since Dec 9.

“You’re seeing encouraging signs of improvement in our markets,” Geithner said yesterday in a Bloomberg Television interview. He accompanied President Barack Obama to London for Group of 20 meetings of leaders from the world’s biggest economies.

‘Negative’ for Sector

Bank of Yokohama Ltd., Japan’s No. 2 regional lender by market value, edged up 0.2 percent to 425 yen, lagging behind a 5.7 percent gain at the Topix Banks Index. The bank yesterday said net income was 88 percent lower than it had forecast for the year ended March 31 due to customer bankruptcies and rising bad-loan costs.

“The guidance cut on higher credit costs is negative for the sector,” Yoshikazu Maeda and Toyoki Sameshima, Tokyo-based analysts for Goldman Sachs Group Inc., wrote in a note to clients today. “We expect consensus forecasts for banks to fall and weaker sector share prices overall.”

Nikkei futures expiring in June added 3.7 percent to 8,690 in Osaka and gained 4.2 percent to 8,700 in Singapore.

To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net.