Japan Stocks Gain as Yen Weakens Against Dollar After Payrolls

(Bloomberg) -- Japanese stocks rose after a U.S. payrolls report supported the Federal Reserve’s case to raise U.S. interest rates, sending the dollar higher against the yen and boosting the earnings outlook of Japanese exporters.

The Topix index gained 0.8 percent to 1,380.41 at the close in Tokyo after erasing losses of as much as 1.7 percent. The index fell 4.4 percent last week to wipe out all its advance after Bank of Japan Governor Haruhiko Kuroda’s Jan. 29 stimulus boost. The Nikkei 225 Stock Average added 1.1 percent Monday to 17,004.30. The yen weakened 0.5 percent to 117.37 per dollar.

“The yen will struggle to continue strengthening because Japan has adopted negative interest rates and Kuroda is threatening more action” said Tomomi Yamashita, a fund manager at Shinkin Asset Management Co., which oversees about $6.3 billion. “I expect it to trade in a range between 116 and 120 per dollar.”

Friday’s payrolls report showed U.S. employers added 151,000 jobs in January, sending the unemployment rate to an almost eight-year low of 4.9 percent and pushing average hourly earnings up 2.5 percent from a year earlier. That followed a 2.7 percent jump in wages in December, the biggest advance since mid-2009.

Traders raised the possibility of at least one Fed rate increase this year to 53 percent, up from 46 percent on Thursday before the report. Against that backdrop of higher interest rates in the U.S, the BOJ introduced negative interest rates last month in Japan and said it will not hesitate to move them lower as necessary.

Weaker Yen

Exporters mostly gained as the yen weakened. Robot manufacturer Fanuc Corp., which gets nearly 80 percent of revenue abroad, rose 3.3 percent, while industrial parts-maker Makita Corp. added 2.3 percent.

Construction firms were among the biggest gainers of the Topix’s 33 industry groups. Totetsu Kogyo Co. jumped 9.3 percent after raising its sales and income forecasts for the current fiscal year. Other firms also rose, including Obayashi Corp. which added 4.3 percent.

Lixil Group Corp. advanced 3.6 percent after Mitsubishi UFJ Morgan Stanley Securities Co. raised its rating on the maker of housing materials, citing stronger overseas growth for the optimistic outlook.

Earnings Worry

By one measure, quarterly earnings at Japanese companies are set to retreat more than 20 percent this quarter, and for the first time since Prime Minister Shinzo Abe came to power in late 2012 more Japanese companies are missing forecasts than beating them.

Asahi Glass Co. plunged 13 percent after its full-year profit target disappointed brokerage CLSA Ltd., which cut its rating on the stock. Nissin Foods Holdings Co. tumbled 8.6 percent, the most in a year, after quarterly operating profit fell in the latest quarter, prompting Nomura Holdings Inc. to cut its price target on the maker of instant noodles.

E-mini futures on the Standard & Poor’s 500 Index added 0.4 percent. The underlying equity gauge sank 1.9 percent on Friday after LinkedIn Corp. and Tableau Software Inc. each almost halved in value on souring earnings. The Nasdaq Composite Index fell to its lowest close since October 2014.

To contact the reporters on this story: Yuji Nakamura in Tokyo at ynakamura56@bloomberg.net; Yuko Takeo in Tokyo at ytakeo2@bloomberg.net To contact the editors responsible for this story: Sarah McDonald at smcdonald23@bloomberg.net Jeff Sutherland