By Lisa Twaronite
Japanese exporter shares skidded Monday despite a weakening of
the yen, a sign that concern about overseas economies is taking as
big a toll on shares as currency appreciation.
The Bank of Japan said in its latest assessment of the Japanese
economy last week that "significant uncertainty regarding economic
conditions overseas does ... exist."
This uncertainty is not lost on investors whenever there are
negative signals from Japan's export markets, such as Friday's
weakness on Wall Street, where the Dow Jones Industrial Average
closed down 0.7% Friday to sink back below the psychologically
important 10,000 level.
Concern over the global economy weighed on exporters in Tokyo
trading Monday, with the sector falling farther than the wider
market.
Tokyo-traded shares of Honda Motor Co. (HMC) were down 2.2%, and
Pioneer Corp. fell 4.1%. Shares of Sony Corp. (SNE) were down
1.1%.
This compared with a 1.1% drop in the benchmark Nikkei 225
Average and a 0.7% decline in the broader Topix 1000 index.
The direction contrasted with recent sessions in which Japanese
exporters have moved inversely to the yen's gains. On Monday, the
dollar was buying 90.93 yen, up from 90.82 yen in late North
American trading Friday.
A weaker currency usually gives exporter shares a lift, because
it raises the value of exporters' overseas profits when repatriated
into yen. It also makes exported goods cheaper in vital overseas
markets.
To be sure, currency appreciation does have a cumulative effect.
According to Barclays calculations, whenever the dollar slips by 5
yen, this pushes down exports 0.7% in the first year, and 1.5% in
the second year.
And despite Monday's dollar gains, many analysts were skeptical
that the greenback will turn a corner against its Japanese
counterpart anytime soon, in light of interest rate differentials
and the dollar's growing popularity as a funding currency.
The spread between the three-month yen and three-month U.S.
dollar London interbank offered rate has narrowed since early
September, but as long as it persists, the dollar will functions as
the main funding currency for carry trades and be sold for
higher-yielding units, said Cantor Fitzgerald economist Uwe
Parpart.
"But before the dollar yield advantage is restored and an
accomplished fact, excessive yen buoyancy will persist," Parpart
said in emailed comments.
Still, despite the currency situation, many observers were more
positive views for the Japanese export sector's outlook.
"Japanese economic recoveries typically begin overseas, then
feed their way from the manufacturing sector to the
non-manufacturing and household sectors," said Barclays Capital
economists Kyohei Morita, Yuichiro Nagai and James Barber.
Emerging Asia now accounts for roughly half of all Japanese
exports, they said, and they expect those exports "to continue
trending upward, driven primarily by demand from China,"
Despite the Bank of Japan's caution over the global recovery,
its October report also had some more bullish comments, saying the
manufacturing sector was benefiting from an uptrend in exports, led
by inventory adjustments. It cited "a recovery in overseas
economies, especially in emerging economies."
Outside of Japan, Asian markets also traded mostly lower, with
South Korea's Kospi down 0.5%, and Australia's S&P/ASX 200 down
0.8%. Hong Kong's Hang Seng Index had last turned positive, up
0.3%. Among the winners, New Zealand's NZX-50 was 0.2% higher and
the Shanghai Composite was up 0.3%.