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Japan enters recession for first time in seven years

Text by REUTERS

Latest update : 2008-11-18

Government figures show that Japan, the world's second-largest economy, has officially entered recession for the first time in seven years. Japan's Nikkei index however closed 0.7% higher on Monday.

View our special coverage: 'Global capitalism on the brink?' and 'The crisis hits Main Street'

 

Japan's Nikkei average gained 0.7 percent on Monday despite data showing the world's second-largest economy has slipped into recession, with buying by public pension funds seen as likely to have boosted shares across the board.

A weaker yen helped exporters such as Canon Inc gain, while Honda Motor Co rose after business weekly Barron's said it would be a big winner once the financial market turmoil subsides. Takeda Pharmaceutical Co and other defensive shares seen as resilient in the face of global economic turmoil were strong performers, but major real estate firms plunged after a survey showed rent charges for new office buildings in Tokyo had declined for the first time in six years.

"There really aren't any good reasons for the market to rise right now, making pension funds seem like the most likely buyers," said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments.

"After all, there are still a lot of problems out there that have yet to be solved."

Other market players said that funds appeared to be buying to bring their stock allotments up to required levels, taking advantage of current bargain prices to do so.

"Foreign investors, such as hedge funds, have stopped selling, and that combined with the thin volume and apparent pension fund buying helped push the Nikkei higher," said Masayoshi Okamoto, head of trading at Jujiya Securities.

Though at one point early in afternoon trade the benchmark Nikkei climbed more than 3 percent, by the close it had shed most of its gains as the dollar slipped against the yen, ending up 60.19 points at 8,522.58.

The broader Topix rose 0.4 percent to 850.49.The market was volatile in relatively light trade, with the Nikkei losing close to 3 percent at one point in the morning after data showed Japan's economy shrank 0.1 percent in the third quarter, lagging market expectations for anaemic growth of 0.1 percent.

On the Tokyo exchange's first section, 2.03 billion shares changed hands, compared with last week's daily average of 2.11 billion.

The contraction confirmed that the global financial crisis has sabotaged growth in yet another major economy, with the euro zone already in recession, using the most common definition of two consecutive quarters of contraction.

But market players said the GDP was old data that the market mostly shrugged off after the initial response.

"It wasn't a surprise, and people are expecting poor figures for the next quarter as well, but that's largely factored in already," said Daiwa SB Investment's Ogawa.

Others, though, said the next quarter's GDP remained a worry.

"We have no factors to expect the GDP figures will be revised up later as a deterioration in U.S. consumer spending is happening really fast, and a resulting firmer yen could further damage Japan's economic outlook," said Takahiko Murai, general manager of equities at Nozomi Securities.

Financial summit not a factor

Governments from Washington to Beijing agreed Saturday to a host of fiscal and monetary steps to rescue the global economy but it was left to individual governments to tailor their response to their particular circumstances and troubled industries, underwhelming markets.

"Basically, it was nice that a lot of important people gathered together and set a direction, but nothing concrete emerged," said Ogawa.

The yen and U.S. dollar rose in a flight to safety on the view that the meeting yielded no concrete moves to avert a global recession, and exporters rose as the dollar climbed back above 97 yen after sliding as slow as 95.87 yen.

Honda's shares rose 1.6 percent to 2,145 yen, with Barron's noting in its long-term favour the fact that it's a leader in making small, fuel-efficient vehicles and that it sells more than just cars and is branching out into new products and markets.

But the standout gainers were defensive shares, with Takeda Pharmaceutical rising 2.8 percent to 4,820 yen and fellow drugmaker Eisai Co gaining 3.3 percent to 3,400 yen. Daiichi Sankyo Co climbed 5.4 percent to 1,964 yen.

A survey by the Nikkei business daily on office rents showed that building owners were lowering rents because tenants have become less willing to expand or move to new offices amid the economic slump.

Major real estate firms plunged. Japan's top property company Mitsui Fudosan Co slid 5.2 percent to 1,383 yen and Mitsubishi Estate Co falling 5.4 percent to 1,396 yen. Sumitomo Realty & Development Co Ltd declined 2.7 percent to
1,276 yen.

Advancing stocks outpaced declining ones, 886 to 720.

Date created : 2008-11-17

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