Nikkei Slips as Japan's Prime Minister Keeps His Job

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In Asia Tuesday Japan's Nikkei 225 Index inched down 0.2% to 9,299 and Hong Kong's Hang Seng Index increased 0.2% to 21,696. In China the Shanghai Composite Index remained virtually unchanged at 2,689.

The Japanese currency rose against the dollar today after Prime Minister Naoto Kan was reelected. Kan faced off against Ichiro Ozawa, a powerful member of the democratic party. Ozawa, an influential lawmaker who many believed had a fighting chance of defeating the Prime Minister, also has a reputation as a bit of a bad boy. He has endured campaign finance scandals and recently rocked the boat by insulting Americans-- calling them "monocellular" and "simple minded".

While Kan claims voter trust is his highest priority, it is not clear whether he will take firm action to halt the rise in the yen -- a move many are anxiously awaiting. "Since markets see that Kan is reluctant to undertake currency intervention, the yen will strengthen further," a senior investment strategist at Mitsubishi UFJ told Bloomberg. Today the yen rose as high as 83.25 against the dollar.

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Japanese carmakers mostly headed south in today's trading as a surging yen cuts into company profits when money is brought back home. Toyota suffered a 1.7% fall, and Mazda tumbled 1.1%. Fuji Heavy Industry, maker of Subaru brand 4-wheel drive vehicles, slid 0.6% and Nissan crept down 0.3%. Meanwhile Hino Motors, which makes heavy-duty diesel buses and trucks rallied 3% and Isuzu advanced 1.4%.

Among car parts suppliers, Asahi Glass slid 2.6% and Bridgestone fell 0.8%. Alps Electric, maker of car electronic components, soared 3.2% and Clarion, manufacturer of car audio systems climbed 1.9%.

Other big losers in today's trading were Obayashi, a general contractor with expertise in earthquake-resistant structures, which plunged 4.8% and East Japan Railway, which declined 2.2%.

In Hong Kong, banks performed well after a decision by the Basel Committee on Banking Supervision to require lenders to boost their equity reinforced policies already in place requiring Asian banks to hold high capital ratios. This leaves Asian banks well placed, since they won't have to fundraise to increase cash positions. Today Industrial & Commercial Bank of China rose 1.5% and both HSBC and Bank of Communications advanced 0.6%.

Among Hong Kong real estate firms, Swire, which has a portfolio that includes Hong Kong's Pacific Place mall, Festival Walk in addition to its other businesses ranging from aerospace and shipping to Coca-Cola bottling, shot up 3.5%, as did China Overseas. Others closed lower with Hang Lung diving 2.4% and Cheung Kong slipping 0.6%.

Cathay Pacific, also owned by Swire, sank 3.1%, despite an announcement last week that airline passenger numbers had increased for the first half of the year.

In China airlines made gains with China Southern Airlines soaring 5.5%, China Eastern Airlines rallying 4.3% and Air China gaining 3.1%.

China's healthcare sector retreated today. Drug companies had made heady gains in the past few days after the disclosure of an outbreak of tick-borne disease and a scare over the spread of drug-resistant bacterial infections stoked interest. But today prices were adjusted as Harbin Pharmaceutical slid 1.9%, Hualan Biological Engineering dropped 1.5% and China National Medicines gave back 1.4%. Perhaps investors are waiting until a real cure is found.
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