The Nikkei’s Losing Streak in Focus: No Plunge Protection Needed


If you haven’t heard yet, then you probably will some point on Monday: Japan’s benchmark Nikkei 225 Stock Average closed in the red on Friday, marking its 12th consecutive decline, the longest since a 15-session losing streak in April-May 1954 during a time of “economic uncertainty” after the end of the Korean War.

However, the current losing streak is likely to end over the next day or two, as buyers emerge and tip the close into positive territory. No plunge protection team at work that we know of and largely unnecessary, because even though the Nikkei 225 has declined just over 8.5% during the losing streak, over half of the losses have been limited to double-digits, with most of those being very small in percentage terms. That said, we’re not expecting a strong bounce back, although maybe, perhaps a gradual one, since recovering even 14,500 remains a big hurdle.

Know that there’s not a exactly a shortage of Japan bulls in the West. We have Jonathan Allum, KBC’s Japan Strategist, pushing the barometer of equity dividend yields (1.8% for Topix-1) exceeding those of the 10-year JGB (1.65% as of July 4), thus indicating an “old faithful” buying opportunity. In the meantime, enjoy watching the koombaya among recently enlightened asset managers seeing a value play in Japan. It may be safe to come out and make a broad, bullish call on Japan, but the upside could be disappointing.

Nevertheless, the 25 DMA of Topix-1 advancers/decliners has done a complete reversal and is back into bearish territory at 72%. Stocks making new lows now widely outnumber those making new highs. All this, along with the yield theory, the end of Q2 (FQ1) and HF redemptions, suggests it is indeed safe, for now, to play in Japan. A few weeks back we were witnessing unprecedentedly bullish technical indicators. Should the losing streak continue, we’ll be testing some historically low-level readings — notice the N225’s already ominous dip below its 13 and 26-week MA. As for P/E ratios, the N225 sits at 15.7x expected and 15.4x trailing, with Topix-1 at 16.0x forward and 16.6x trailing.

Nikkei 225 Chart July 4 2008