What to watch: Monday, 3/31: February Industrial Production; Tuesday, 4/1: Tankan (watch capex spending outlook and yen/dollar predictions — the FY07 second-half ¥/$ prediction for the December survey was 113.79 compared to 114.23-33 in the Sept. and Mar. surveys and a most recent quote of about ¥99).
Ongoing: Bank of Japan [BoJ] rate cut speculation; the BoJ meets twice in April but is still in disarray and any talk of a rate cut is ridiculous considering the current target of 0.5% and misleading inflation readings; external factors will continue to weigh heavy on broader market sentiment, while internal government policy and corporate governance suppress overseas investor enthusiasm.
Markets: Fiscal year-end is Monday, 3/31; last week’s gains (see below) are attributed to window-dressing; historical returns for April over the past 17 years show positive monthly gains in 11 of the years (the average return for April over the 17-year period is 0.8% and the median is +2.2%). Returns from the first day of trading in the new fiscal year are split nearly 50/50 (positive/negative) over the period; foreign retail investors continue to be net-buyers (seventh-consecutive session) but foreign institutional investors are not buying; so do we test 13,000 or fade back to 12,000? How about we take the middle road …
Weekly recap: weekly 2.7% gain to 12,820, fueled largely by a broad rally on Friday; weekly range of 12,438 (Monday) to 12,874 (Friday); as of Friday’s close the N225 is trading at 14.4x trailing earnings, 14.3x forward earnings, 1.5x book, 1.5% trailing yield and 1.6% forward yield. By comparison, the broader TOPIX (1st Section) is trading at 16.3x trailing earnings, 15.1x forward earnings, 1.4x book, 1.7% trailing yield and 1.8% forward yield.
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