S&P outlook gives Tokyo a lift

JAPANESE equities got a shot in the arm today from ratings agency Standard & Poor's (S&P) which helped the Nikkei 225 shake off some of the gloom of recent sessions.

Echoing the assessment favoured by most private-sector economists, S&P said that at the micro-level, corporate restructuring efforts were paying off and profitability was rising.

The knock-on effect at the macro-level was that growth prospects for the country were on an upward track after years in the doldrums, the agency added.

As S&P revised its sovereign outlook on Japan to stable from negative the Nikkei advanced 83.90 points to close at 11,364.99. The firmer tone was also underpinned by a sense that while fears about terrorism and security remained, they had become less potent.

S&P's statement aided banks, the most convenient play on the domestic economy. Mizuho Financial, the largest lender by assets, climbed 18,000 yen or 4.4% to 432,000, while rival Sumitomo Mitsui Financial traded at 744,000 yen, better by 26,000 yen or 3.6%.

Consensus forecasts suggest that Japan's economy should expand by between 2.5% and 3.5% this year, its fastest for years.

The uptick has fuelled hopes that after more than a decade of stagnation the world's second-largest economy is at last gaining decent momentum.

'With this rating action, Standard & Poor's is signalling to the market that Japan appears secure in its rating category for the next couple of years' said S&P credit analyst Takahira Ogawa.

The Tokyo administration, however, failed to find any kind words for S&P, saying instead that it had mishandled the economic analysis that led it to maintain the current AA-/A-1+ sovereign rating.

'They are not carefully looking at the state of the Japanese economy, so the rating is still low,' Chief Cabinet Secretary Yasuo Fukuda told reporters. 'I'm not that happy even if they upgraded because their rating was too low to begin with.'

Exporting stocks missed the party amid lingering concern about whether shipments would be disrupted by any future increase in terrorist activity. Sony dipped 70 yen or 1.7% to 4,180, while Toyota backtracked 70 yen or 1.9% to 3,690.

Taiwanese shares put on gains as major companies announced stock-buyback measures while a giant State fund began buying.

The market had been unnerved for two sessions after President Chen Shiu-bian was narrowly reelected but opponent Lien Chan disputed the result. A recount appears likely.

Chipmaker Taiwan Semiconductor rose T$2.50 or 4.6% to T$57.50 on plans to re-purchase 1.5% of its shares today and tomorrow.

Rival United Microelectronics also made headway, rising 80 cents or 2.9% to T$28.70. It plans to spend more than £200m to buy more than 2% of its own shares. The Taiwan Weighted index rose 40.67 points to 6213.56.

Hong Kong, which had been unsettled by the political developments in Taiwan, posted gains as more investors decided that it was the right time to start buying back in earnest. The Hang Seng index traded at 12,668.67, better by 80.31 points or 0.6%.

De facto flag-carrier Cathay Pacific Airways benefited from the uplift and rose 20 cents or 1.3% to HK$15.35, while lending giant HSBC also started to make some headway, firming 50 cents or 0.4% to HK$117.