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Stocks

Market Scramble: Long-term investors saying sayonara to Japan

TOKYO -- An exodus by foreign long-term investors contributed to the fifth-straight losing session here Monday as Japanese stocks continue running in the opposite direction of their Western peers.

     Auto stocks in particular took a beating. Toyota Motor gave back 3% on Monday, plumbing a new year-to-date low. Nissan Motor also fell 3% while Honda Motor closed down 1%.

     Dragged down by auto stocks, which have fallen "too far" in the eyes of Mamoru Shimode of Resona Bank, the Nikkei Stock Average lost ground it gained earlier in the day, dashing hopes of a rebound after the plunge that capped last week's trading.

     "Demand for automobile, machinery and other leading stocks is weak," said a trader at a Japanese brokerage. "The Mothers market [for startups] is about the only thing that is robust."

     Chisato Haganuma of Mitsubishi UFJ Morgan Stanley Securities sensed the shifting attitudes toward Japanese securities when he met with U.S. institutional investors last week. Concerns were raised about a lack of profit drivers and potential for the stronger yen to eat into earnings.

     The selling spree by oil money, which has roiled stock prices since the start of 2016, has finally run its course. But pension funds and other long-term investors from the West have stepped in as sellers.

     "Overseas investors are losing interest in Japanese stocks," said Kyoya Okazawa of BNP Paribas Securities.

     Those funds instead seem to be heading to Wall Street. On Friday, the Dow Jones Industrial Average reached a four-month high. The decoupling of Japanese stocks from U.S. issues has grown more pronounced over the past month. Tokyo shares have also stopped tracking German equities as closely as they used to.

     The differing momentum in corporate earnings sheds light on those trends. American companies are expected to see an earning rebound in the July-September quarter in part due to a bottoming out of oil prices. Blue chips there will likely boost profits by 4% in 2016, according to estimates from Thomson Reuters.

     On the other hand, the single-digit profit growth projected for Japanese corporations may be downgraded, said Hitoshi Ishiyama of Sumitomo Mitsui Asset Management.

     Even issues that used to be seen as stable investments are getting the cold shoulder. Bond buyers from Europe and elsewhere previously parked funds in Japanese stocks that generate steady dividends and are buffered from economic fluctuations. But Ajinomoto and Meiji Holdings -- two companies emblematic of stable shares -- have seen their prices dive 10-20% since early February.

     Foreign investors believe there is no need to purchase Japanese stocks right now, said Ishiyama.

     The stock market is now counting on fiscal spending and other government programs, with May's Group of Seven meeting and other political events drawing attention. The Tokyo market will have to rely on policy measures once again.

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