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Topix on downward spiral as Yen maintains gains

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Topix (TPX), the Japanese equity share index, dropped from the highest close in more than four months while the yen maintained gains. The technical indicators such as the stochastic oscillator, the relative strength index and the money flow index pointed to some investors the market is overbought. There are also signals that the economy is overheating; a matter of concern to many investors.

The Topix lost 0.1 percent to 1,237.75 at the close in Tokyo after ending on 11th June at the highest since January 29, while the 25-day Toraku Index reached 133. The 25-day Toraku Index is used to compare the numbers of declining and advancing stocks on the Topix. A level above 120 is an indication to some investors that shares have been overbought.

The Topix gained 13 of the previous 15 days. It traded at 1.2 times book value on June 11, compared with 1.9 for the Stoxx Europe 600 Index and 2.7 for the S&P 500.

A quick look at some specific counters reveals that Takata Corp. shed 2.1 percent. The drop is attributed to its defective airbags which it said require some fixing. Tokyo Dome Corp. was the hardest hit after its quarterly profit plunge. It lost 3.1 percent to 493 yen, and its net income dropped by 63 percent to 777 million yen in the three months ended April 30 from a year earlier. In fact it was the worst on the Nikkei 225 Stock Average.

On the other hand, Mitsubishi Heavy Industries Ltd. showed some positive gain of 1.3 percent. This is after it said they were in talks with Siemens AG on a proposal to buy Alstom SA’s energy business jointly. This strategy was adopted after they learnt that General Electric Co. had offered $17 billion for the same.

Mitsubishi Heavy Industries Ltd and the Munich-based Siemens said in a statement on June 12 that they will decide whether to submit a joint proposal to Alstom’s board of directors in respect of the intended purchase. The proposal is expected to be submitted by June 16.

The Nikkei 225 shed 0.6 percent to 14,973.53. The yen held at 102.05 per dollar after rising by 0.5 percent in the past two days.

As the yen maintained gains, exporters slid, with Fanuc Corp losing 2.2 percent to 17,325 yen, and Komatsu Ltd. shedding 0.7 percent to 2,317 yen. Fanuc Corp. makes factory automation systems while Komatsu Ltd. makes construction machinery.

Takata shed 2.1 percent to 2,107 yen after slashing 4.1 percent on June 11. Toyota Motor Corp. expanded a 14-month-old recall of more than 2 million vehicles. This was after Takata told clients that some fixes may be needed for its defective airbags. The Toyota Motor Corp. rose 0.1 percent to 5,880 yen on June 12.

Futures on the Standard & Poor’s 500 Index fell 0.4 percent June 11 as the World Bank revised its forecast for global economic growth downwards, coupled with investors weighing equity valuations.

According to analysts at JPMorgan & Chase Co. and Pierpont Securities LLC, the U.S. economy contacted more than estimated in the January-March period on a drop in health-care spending, meaning the GDP shrank at a 1.6 percent rate; steeper than the revised 1 percent contraction reported May 29.

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