Japanese Stocks Rally as Investors Seek Domestic Haven --- Gains in Tokyo Follow U.S. Drops
TOKYO -- As the New York stock market goes, so goes Tokyo. That has been the lesson of recent experience, but it hasn't worked out that way in the first two days of this week, when sharp declines in U.S. equity prices were followed by surprising gains in Japanese shares.</br></br>Yesterday, the Nikkei 225 stock average rose 261.74 points, or 1.8%, to close at 14369.63. On Monday, the Nikkei gained 192.26 points, recovering from a 12-year low of 13915.63 that it hit Friday. The yen strengthened against the dollar to 138.20 yen per dollar in late Tokyo trading, up from 141.50 yen Monday.</br></br>Broad movements in the New York and Tokyo markets have recently been closely linked, as investors have started treating Japan's biggest blue-chip exporters much the same way they do their U.S. counterparts. So the fact that Japanese stocks were able to shrug off the 6.37% drop in New York on Monday raised eyebrows on trading floors across the nation and fueled speculation that the government had stepped in to support the market -- something that politicians from Finance Minister Kiichi Miyazawa on down have promised not to do.</br></br>There was no firm evidence that the government had intervened in the market, however. Although some traders interpreted buying by public pension funds as a sign of government support, other analysts said it was more likely that those pension funds were simply engaged in normal buying. While public pension funds have helped the government support the market in the past, these days they are burdened with huge unfunded liabilities and are desperately trying to earn better returns, making them unlikely proxies for a government interested in bolstering a sagging market.</br></br>Instead, strategists think that fresh interest in Japanese shares, which many expect to be short-lived, mainly reflects a renewed caution among Japanese investors who are spooked by the turmoil in U.S. and European stock markets and willing, at least for now, to give domestic shares a second look. Some analysts suggested that the market rise also could be the result of hopes that the U.S. will cut interest rates in order to counter the effects of the U.S. stockmarket decline. Lower rates would mean a weaker dollar, which would help Japan's beleaguered banks.