Japanese stocks fall on profit taking

Japan's main stock index, the Nikkei 225, fell as much as 2.6 per cent on Monday - the first trading day of the new year, as investors booked profits.

Japanese shares have surged over the past year, with the Nikkei 225 index gaining 57  per cent  in 2013.

The surge has been prompted by a series of aggressive policies unveiled by the government to revive Japan's economy.

The steps have seen a sharp decline in the yen's value, helping lift exports and boost profits of leading exporters.

The yen hit a five-year low against the US dollar on Friday - but recovered slightly in early Asian trade on Monday.

Analysts said the recovery in the yen had also prompted the sell-off in Japanese shares.

"Tokyo stocks are overbought, and a break in the yen's fall, plus weaker futures are sure to result in some long-needed profit-taking after the December run-up," said Hiroichi Nishi, general manager of equities at SMBC Nikko Securities.

Further jump?

Japan's economy, the world's third-largest, has been stagnant for nearly two decades.

In an attempt to revive growth, Japan's policymakers have unveiled a series of moves including doubling the country's money supply.

The moves have seen the yen weaken more than 20 per cent against the US dollar since January last year.

A weaker yen makes Japanese goods more affordable for foreign buyers and boosts profits of exporters when they repatriate their foreign earnings back home.

A weak currency, coupled with signs of a recovery in the Japanese economy, has helped boost investor sentiment and lifted Japanese stocks.

Analysts said that Japan's central bank, the Bank of Japan, was likely to continue to take further steps to help sustain the recovery - which would help boost stocks further in the coming months.

"We know there is more to come from the Bank of Japan," Richard Jerram, chief economist at Bank of Singapore, told the BBC.

"The yen is going to keep going down and as we saw last year, it's a fairly simple dynamic. It boosts the corporate sector, boosts profits and the stock market."

Mr Jerram said that Japan's main stock index could rise between 15 per cent  to 20 per cent in the current year.

BBC