Tuesday, September 14, 2010

Nikkei seen firm but resistance looms; DPJ vote eyed

TOKYO: Japan's Nikkei on Tuesday, Sept 14 is likely to hover around a three-week closing high hit the day before, with investors awaiting a ruling party leadership vote in the afternoon while yen strength continues to weigh.

Market players are closely following the Democratic Party of Japan's leadership race, in which powerbroker Ichiro Ozawa is challenging Prime Minister Naoto Kan, as the result may reset the country's fiscal priorities.

A short-term buying signal has emerged for the benchmark, after its 5-day moving average pierced above its 25-day moving average, forming a "Golden Cross" that can often indicate further rises.

But market players see resistance at 9,500, roughly around its 75-day moving average as well as the bottom of the Nikkei's Ichimoku cloud. Ichimoku charts are popular with Japanese traders.

"Japanese stocks are likely to continue to be pressured as dollar/yen remains around 83 to 84 yen despite a sharp recovery in U.S. stocks," said Kenichi Hirano, operating officer at Tachibana Securities.

"The risk that Japanese stocks would hit another trough has receded, but profit-taking will also likely limit further gains."

Market players said there would be a reluctance to take positions actively before the Democratic Party vote result is known, probably after the market close.

Ozawa has vowed to act to curb the yen, including solo intervention in currency markets, as the currency's rise to 15-year highs is threatening Japan's economic recovery. Kan's team has repeatedly expressed its concern about the yen's climb, but so far has refrained from stepping into the market.

"The result is expected to be a close call. While opinion polls have favoured Kan, the stock market overwhelmingly would want to see Ozawa win because he is seen to be a more aggressive leader, including his view on currencies," Hirano said.

Nikkei futures traded in Chicago closed at 9,335, up 0.8 percent from the Osaka close.

The benchmark Nikkei is likely to move between 9,200 and 9,400, market players said. It rose 0.9 percent on Monday to 9,321.82, its highest close since Aug. 19.

In early Asia trade, the dollar traded at 83.71 yen, within sight of a 15-year low of 83.34 yen hit last week.

U.S. stocks gained, driven by robust economic news from China and relief that new global bank rules would not mean a rush to raise billions of dollars in extra capital, which had already lifted the Japanese market the day before.

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