Japan's Nikkei share average ended flat on Monday as disappointment about a profit warning from Honda Motor Co was balanced by hopes that the Bank of Japan will substantially expand its easing programme when it meets on Tuesday. Honda fell 4.7 percent in heavy trade after cutting its net profit outlook for the year by 20 percent to 375 billion yen ($4.71 billion) after sales sagged in China due to a boycott of Japanese products after a territorial dispute.
Toyota Motor Corp, whose sales in China almost halved in September, reversed early gains to lose 1.6 percent, and Nissan Motor Co dropped 2.2 percent in anticipation of similar forecast cuts when they report results next week. "Honda's results had quite a big impact on the market today," said Hiroyuki Fukunaga, CEO of Investrust.
"It was worse than consensus and they cut the number of cars they are expecting to sell as well." The Nikkei edged down 3.7 points to 8,929.3, extending a loss on Friday that knocked the benchmark from a four-week high. The index has been buoyed over the past month by a softer yen and expectations that the BOJ will expand its asset purchases by at least 10 trillion yen.
There are also hopes that the central bank could commit to injecting cash until inflation reaches 1 percent. Real estate, an industry likely to benefit any further purchases of real estate investment trusts by the central bank, was the second-best performing subindex, with a gain of 1.6 percent. "Futures are barely moving and it's very difficult to either buy or sell today because no one is quite sure of the scale or the details of the easing," said Fumiyuki Nakanishi, general manager of investment and research at SMBC Friend Securities.
Volume was thin, with trading on the main board at just 88.7 percent of its 90-day average. "However, if the BOJ were to inject 20 trillion yen, mostly into bonds, it could soften the yen again," Nakanishi added. A softer yen boosts Japan's exporters. Although the yen firmed slightly over the weekend to 79.6 to the dollar, Deutsche Securities analyst Taisuke Tanda said in a note it was still on track to hit 82 against the dollar by end-2012, due to "the retreat of downside tail risk in Europe and rising US interest rates as economic indicators improve." Mobile provider NTT DoCoMo shed 6 percent to hit a lifetime low and was the most-traded stock by turnover on the main board after cutting its full-year operating profit outlook by 9 percent as it struggles to catch iPhone-selling rivals Softbank Corp and KDDI Corp.
"Ultimately we think this proves that unless DoCoMo introduces the iPhone, the impact on its finances will become all the greater," said Morgan Stanley MUFG analyst Tetsuro Tsusaka in a note. The stock was the most-traded by turnover on the Topix index, which lost 0.1 percent to 740.30. Of the 21 Nikkei companies that had reported results as of last Friday, 67 percent undershot analysts' predictions, according to Thomson Reuters' StarMine.
But market participants say exaggerated pessimism ahead of the earnings season has meant robust share price gains for quite a few stocks that did not do worse than analysts' predictions. "Earnings are below expectations but because that's priced in, it's tended to be a case of 'Well, as long as they're not really bad'," said Tetsuro Ii, CEO of Commons Asset Management.
Nippon Sheet Glass Co Ltd rose 3.3 percent after the Nikkei business newspaper said the company was likely to post a 3 billion yen ($38 million) operating loss for the second quarter, smaller than the 4.5 billion yen loss forecast and narrower than the 8.5 billion yen loss in the first quarter.
NEC Corp added 5.7 percent after making an operating profit of 47.4 billion yen for the first half, despite logging a small operating loss in the first quarter, with analysts expecting it to now beat full-year guidance. Nomura Holdings Inc, Renesas Electronics Corp and Kansai Electric Power Co Inc are among companies reporting after the bell on Monday.
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