Eoin Treacy's view I last reviewed Japanese equities on February 9th in a piece entitled “Japan: land of the rising sun or false dawns?”. In it I posted a list of Japanese shares that were posting at least new 12-month highs. I also highlighted the outperformance of the banking sector and repeated our contention that Yen weakness was a precondition for stock market outperformance.

Since then the Dollar has strengthened to more than ¥80 and appears to be consolidating its recent gain. A sustained move below ¥80 would now be required to question scope for additional upside. The Euro has rallied to break the almost yearlong downtrend against the Yen and will need to find support above ¥100 on the next pullback to confirm a return to demand dominance beyond the short term. The Korean Won continues to extend its break above ¥7 and a sustained move below that level would be required to check potential for continued higher to lateral ranging.

I thought today it might be instructive to review the Japanese banking sector. The Topix Banks Index yields 3.33%, has a P/E of 10.3 and continues to outperform the wider market. Of the 83 constituents, Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group and Mizuho Financial dominate the Index with a combined weighting of more than 61% and share a similar pattern with the Index. All have rallied persistently for a number of months and pushed back above the 200-day MA for the first time in a year. The medium-term upside can continue to be given the benefit of the doubt provided they find support above their respective 2011 lows on the next significant pull back.

Toho Bank (P/E 18.9, dividend yield 2.25%) has extended its advance and is now pressuring its March 2011 high. While somewhat overbought in the short-term, a sustained move below the 200-day MA would be required to question medium-term scope for additional upside.

Aozora Bank (P/E 9.04, dividend yield 3.84%) completed a six-month first step above the base in November and ranged above ¥200 until early February before breaking upwards again. A sustained move below ¥200 would now be required to question medium-term scope for additional upside. (Also see Comment of the Day on March 15th 2011).

Chugoku Bank (Est P/E 13.56, dividend yield 1.14%) broke above the 200-day MA in August and has found support above it in a number of occasions since. It is currently rallying towards the upper side of the developing range and a sustained move below ¥1050 would be required to check potential for a successful reassertion of the medium-term uptrend.

Shizouka Bank (P/E 13.31, dividend yield 1.62%) completed a first step above the yearlong base this week and a sustained move below ¥775 would be required to question medium-term scope for additional upside. Minato Bank (P/E 7.37, dividend yield 3.05%), Amori Bank (P/E 18.8, dividend yield 2.31%) and Shikoku Bank (P/E 13.24, dividend yield 1.8%) have all formed first steps above their respective bases and are testing the upper boundaries.