Foreign investors show faith in Japan

JAPANESE equities rose by an impressive 47% in the financial year to the end of March amid a gathering belief that years of economic stagnation are finally coming to an end. And there are clear signs of continued optimism in the market for the months ahead, especially from foreign funds.

The Nikkei 225 tracked in and out of positive territory today with some players reluctant to take major positions ahead of the Easter break in many centres, including the all-important US markets. But aided by a surge in Ito-Yokado, Asia's largest retail group, the benchmark index ended up 72.97 points at 12,092.59.

The latest evidence of sustained optimism came in data from the Ministry of Finance, which tallies the volume and direction of capital flows. Last month foreign buying of Japanese stocks was a net 2.8 trillion yen, a record sum that was far ahead of the previous best total of 1.7 trillion yen, recorded in July last year.

The uptick in foreign interest has contributed to a run-up in market indicators. On Tuesday the Nikkei 225 managed its first close above the 12,000-point threshold for 32 months.

The more-inclusive Topix index has also done well. It has been driven to its best showing since August 2001. Today it edged up 2.01 points or 0.2% to 1206.82.

Drivers of the better performance are many. Japan's export-focused industries are doing well, especially with booming demand coming from neighbour and rival China. In support of this vital sector, the authorities have done their best to cap yen gains through record levels of forex market intervention, buying dollars.

There are also signs that corporate restructuring is paying off on the home front with macro-economic growth accelerating. In the final quarter of 2003, Japan grew an annualised 6.4%, beating by a clear margin the US rate of 4.1% in the same period.

Economists say other important reform efforts - the clean-up of the banking system's bad debts, and flood of cheap money to put an end to years of deflation - are also starting to come good.

Today's rosy numbers came from the retail chain, Ito-Yokado. It said net profit rose 15% to 54 billion yen (£277 million) in the year to February and its shares added 180 yen or 3.8% to 3910.

Carmakers, strong exporters, did well today on hopes for better sales, which eclipsed worries about possible yen strength. Toyota Motor gained 60 yen or 1.6% to 3940, Nissan Motor firmed nine yen or 0.7% to 1222 and Honda Motor rose 10 yen or 0.2% to 4750.

Hong Kong shares were little changed as the market drifted towards the Easter break, although there was light profit-taking in shares of blue-chip exporters. Johnson Electric, which makes micro-motors, fell five cents or 0.6% to HK$8.90 and sports shoe maker Yue Yuen Industrial eased five cents or 0.2% to HK$22.

The meagre activity was reflected in bank plays. Market heavyweight HSBC, the global lender, stayed level at HK$118.50, while Bank of China (Hong Kong) was also unchanged at HK$15. The Hang Seng index added 12.99 points or 0.1% to 12,933.04.

Korea's chip leader, Samsung Electronics, traded 1000 won better at 601,000 on expectations that earnings and demand are still improving. Early in the session it notched up a fresh record high of 605,000 won. The Korea Composite Stock Price index was barely moved, up by just 0.67 of a point at 910.6 points.