Japan’s Nikkei 225 Erases Losses for 2016 Before Fed Meeting

(Bloomberg) -- Japanese shares rose, with the Nikkei 225 Stock Average recouping losses for this year as the yen slid to a 10-month low against the dollar before the Federal Reserve sets interest rates this week.

The equity gauge advanced for a fifth day, its longest rally in two weeks. The Topix index fluctuated between a gain of 1.2 percent and a decline of 0.3 percent. Traders are pricing in a 100 percent chance the Fed will raise interest rates by 25 basis points when it meets for a policy review on Dec. 13-14. Japanese stocks have staged a dramatic rebound in the second half, riding on a global recovery in risk appetite, with investors betting that U.S. President-elect Donald Trump will boost economic stimulus.

“Markets are moving ahead quite a bit based on expectations, which may be the case until January,” said Masahiro Ichikawa, a senior strategist at Sumitomo Mitsui Asset Management Co. “Policy expectations for the Trump administration are basically a tailwind for cyclical shares, and export-reliant businesses will continue see positive momentum.”

The Nikkei and Topix have climbed more than 10 percent over the past two months, entering a bull market in November after rising by more than 20 percent from their respective 2016 lows set in June. Several brokerages including Goldman Sachs Group Inc., Morgan Stanley, Nomura Holdings Inc. and Nikko Asset Management Co. have revised their outlook for Japanese equities, saying the bull run is here to stay.

“Japanese corporations had been assuming a 100 yen to the dollar foreign-exchange rate for their business plans this fiscal year and should the yen settle around 115, profits are likely to head upward,’’ said Hiroaki Hiwada, a strategist at Toyo Securities Co. “We can expect buying from foreign investors that have been cutting back on their exposure to Japanese equities and retail investors who have yet to jump on the Trump rally.’’

Summary

• Nikkei 225 gains 0.8 percent to 19,155.03, erasing a year-to-date loss that was steeper than 20 percent as of June; gauge ended 2015 at 19,033.71
• Topix rises 0.4 percent to 1,531.43; it’s up 29 percent since the low in late June
• Yen falls 0.3 percent to 115.69 per dollar after sliding 1.1 percent Friday
• Food companies, fishery and agriculture shares led gains among Topix industry groups
• Bank shares weigh on the Topix gauge following a recent rally
• Topix gauge of oil and coal producers touched its highest level since June 2015 after Saudi Arabia signaled it’s ready to cut output by more than previously agreed

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Makino Milling Machine Set for Gain as Earnings Recover: MUFJ-MS
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To contact the reporters on this story: Min Jeong Lee in Tokyo at mlee754@bloomberg.net, Hideki Sagiike in Tokyo at hsagiike@bloomberg.net. To contact the editors responsible for this story: Divya Balji at dbalji1@bloomberg.net, Naoto Hosoda, Jonathan Annells