June 4, 2014 12:57 am JST

Domestic-demand stocks lift Nikkei index back to 15,000

TOKYO -- Domestic-demand shares have driven the recent rebound by the Nikkei Stock Average as worries over the impact of the April 1 consumption tax hike fade and investors await the government's new growth strategy due out this month.

     The Nikkei average broke the 15,000 mark for the first time in roughly two months Tuesday. "With (stocks) climbing this far, not holding Japanese stocks has started to be seen as a risk," says Hidetoshi Oi of Barclays Securities Japan.

     Retail investors and some foreign investors had been leading the way thus far, so aggressive buying by Japanese institutional investors drew particular notice Tuesday.

     Much of this broader buying was drawn to stocks whose fortunes rise and fall with Japanese demand. Mobile service provider SoftBank pushed past major exporters to top the trading value ranking on the first section of the Tokyo Stock Exchange, followed by major banks and nonbank financial institutions.

     Domestic-demand shares also accounted for many of the 152 first-section stocks hitting year-to-date highs. JR Tokai continued its winning streak for a 12th day to reach its highest point in around seven years, thanks to strong earnings bolstered by demand for business and foreign-tourist travel.

     Domestic-demand-oriented companies have played a central role in the Nikkei average's rally since it hit a year-to-date low April 14. Telecommunications, real estate and financial stocks have logged some of the largest gains since then among Topix 100 components, with Astellas Pharma jumping 23%.

     One main factor bringing buyers back to this area is the easing of worries over Japan's economic outlook. Major department stores report milder year-on-year sales declines for May than for April, and businesses are willing to engage in capital spending.

     "Hopes of escaping deflation are causing attention to be readily drawn to domestic-demand stocks," says Mamoru Shimode, chief strategist at Resona Bank.

     High expectations for the government's growth strategy are bolstering stock prices as well. A number of market-conscious policies are being included in the plan, such as an overhaul of public pension management, a corporate tax cut, and corporate governance reform.

     But ensuring that buying spreads to the rest of the market is key to pushing prices up further, and export stocks remain mired in a slump. Sony's price has slid 12% since April 14, and Toshiba and Honda Motor have edged up only slightly.

     Exporters are unlikely to enjoy the same boost to profits from the weak yen that they did last year. Market players will be watching to see whether the U.S. recovery is on a firm footing and whether uncertainty in emerging markets clears up.