Strong dollar helps Nikkei to a four-year high

Share prices in Toyko yesterday ended at a four-year high and analysts predicted that the bull run, which has seen the Nikkei 225 surge by 50 per cent since last summer, will continue for the next three months at least.

The Nikkei 225 index closed up 153.54 at 21,560.39, helped by the continuing strengthening of the dollar and in anticipation of a fresh wave of investment in the market.

Brokers believe the Nikkei is headed rapidly towards 23,000, a level last seen in 1991.

Share prices are being buoyed by a steady improvement in the economy. The corporate earnings outlook is also positive. The Nikkei 225 rose 7.7 per cent alone in the first quarter of this year, and by 32.6 per cent in the financial year which ended on 31 March.

Analysts said earnings forecasts, due in May, would play a key role in deciding the stance of investors towards the market. "Investors will buy on year to March 1997 earnings forecasts," said Tim Hayashida, strategist at Merrill Lynch, which has a "bullish view" on corporate results. He added that positive earnings prospects should help the Nikkei 225 index rally in the second quarter, and head towards the 24,000 point level by the third quarter

Corporate results for the year just ended were not expected to cause a sell-off of stocks, with investors having already discounted much of the "likely damage to profits from bad debt write-offs" in the bank and related sectors.

The steady recovery in the economy should also lift the market, analysts said. "We are expecting positive indicators on the macro-economy in the first half of the year (to March 1997), in part on a rebound from last year when the strong yen adversely affected the economy," said Satoru Ishihara, manager of investment information at Yamaichi Securities.

Public works spending is likely to play a key role in the recovery in the six months to September, Mr Hayashida said. "The economy itself is on a recovery track although [progress is] slow, and interest rates are unlikely to rise sharply, with 3.5 per cent remaining the maximum for the long-term bond yield in calendar 1996."

Another positive trading incentive may come from the yen continuing to ease against the dollar in foreign exchange trading. Analysts said the trend in the foreign exchange would probably remain positive for the stock market and trigger renewed buying interest in high-technology issues

The easing of the yen against the dollar should mean optimism for earnings of export-dependent electricals.