Banks: Mizuho Financial Group Inc. (8411 JT) led bank shares to jump after the Nikkei newspaper reported the Basel Committee on Banking Supervision has agreed to give major banks a transition period of at least 10 years to meet new capital adequacy rules. Also, Deutsche Bank AG lifted its rating on the bank sector to "market weight" from "underweight" today.

Mizuho surged 18 percent to 186 yen, set for the biggest gain since October 2008. Sumitomo Mitsui Financial Group Inc. (8316 JT) soared by its upper daily limit of 400 yen, or 15 percent, to 3,050 yen, headed for the sharpest rise since October 2008. Mitsubishi UFJ Financial Group Inc. (8306 JT) gained 5.4 percent to 472 yen. Aozora Bank Ltd. (8304 JT) rallied 15 percent to 113 yen. Shinsei Bank Ltd. (8303 JT) jumped 15 percent to 120 yen. Mizuho Trust & Banking Co. (8404 JT) climbed 13 percent to 93 yen.

Eoin Treacy's view The Japanese stock market was a serial underperformer last year, hampered by the strength of the Yen and the drip feed of bad news from the financial sector. However, 2010 has so far seen the Nikkei outperform, the Yen is weaker against the Dollar and the Won and the banks are beginning to show signs of life.

The Topix Banks Index has been underperforming the Topix since 2005 and continues to trend lower in relative terms against the broader index. A sustained move above 0.1665 would break the progression of lower highs and likely signal a medium-term period of outperformance.

In absolute terms, the Index tested the 2003 low in March 2009 and has been ranging above that level since. It is currently rallying, having found support in the region of 130, and broke upwards from the one-month range last week. It found support in the region of 140 today and a sustained move to new lows would be required to question scope for further upside.

Of the banks mentioned in the above article, Aozora Bank is one of the better performers. It found support well above the 2008 low in November and has so far sustained the break above ¥112. A sustained move below ¥100 would be required to question scope for further higher to lateral ranging.

The Yen Trade Weighted Index needs to sustain a move below 120 to indicate that a more sustained, board-based period of weakness for the currency is underway.

The Topix 2nd Section Index of small cap shares continues to trade at a Price/Book of less than 1. The ratio bottomed out between October 2008 and March 2009 and found support above 0.6 last November. A sustained move below that level would be required to indicate a reappraisal of value in the market. The Index shares a similar pattern with a sustained move below 2000 required to question scope for further upside.

The Nikkei has so far held the breakout from the 6-month range but one has to question to what extent this relative strength will be maintained against a background of a challenging environment for global stock markets. Nevertheless, a sustained move below today's low would be needed to hinder potential for some additional higher to lateral ranging. A decline back below 10,000 would suggest a lengthier period of underperformance.