Asia Stocks Rise In Choppy Trade, But Japan Slides

Asian stocks traded mostly higher in a choppy session Monday, with Japanese shares sliding back from last week’s multi-year peaks as a two-day meeting at the Bank of Japan got underway.

The Nikkei Stock Average  declined 1.1%, after soaring 2.9% Friday to its highest level since April 30, 2010.

South Korea’s Kospi  traded flat. while Australia’s S&P/ASX 200  edged up 0.1%.

Hong Kong’s Hang Seng Index was little changed while the Shanghai Composite Index  rose 0.2%.

U.S. stocks ended Friday’s session with gains ahead of a Monday’s holiday, with the S&P 500 index  closing the day at a five-year high.

Investors were cheered by earnings from industrial heavyweight General Electric Co. , as well as signs of progress on a debate over the U.S. borrowing limit.

This week, political events “will likely dominate headlines,” said Credit Agricole strategists. The market will likely pay close attention to the U.S. debt-ceiling battle, the Bank of Japan meeting and the results of a German state election in Lower-Saxony among other events, they said.

A two-day policy meeting at the Bank of Japan started Monday and the dollar dipped to ¥89.58, moving back from a mid-2010 level of just over ¥90 reached Friday, amid the gathering.

The dollar has surged against the yen since late last year amid growing expectations that the Japanese central bank will ramp up deflation-fighting measures to boost the Japanese economy.

The sharp fall in the yen has helped exporters to some big gains recently, although some firms were paring recent advances on Monday. Mitsubishi Motors Corp. dropped 3.2%, and Fuji Heavy Industries Ltd. fell 3.3% in the auto sector.

Manufacturing firms were also lower on Monday, with robotics firm Fanuc Corp.  down 3.2% and Mitsui Engineering & Shipbuilding Co. off 1.4%. Similarly, some financials lost ground, with Nomura Holdings Inc.   losing 1.2%.

Japanese monetary policy isn’t just important for Japan, according to one analyst. Tim Condon, head of Asia research at ING Financial Markets Research, called it “the biggest source of upside risk to the global economy.”

“We think an open-ended commitment to increased accommodation would need to be supported by increased asset purchases — what the Fed has done with QE3 — and policy interest rate cuts, for the risk scenario to become the base case,” Condon said.

QE3 refers to the third round of the U.S. Federal Reserve’s quantitative easing, an asset purchase program that boosts liquidity.

Hong Kong stocks hovered around two-year highs on Monday, with diversified firm Citic Pacific Ltd. , which has an exposure to iron ore mining, gaining 2.5%, while ports operator Cosco Pacific Ltd.   rose 2.9%.

Evergrande Real Estate Group Ltd.   climbed 2.3%. Moody’s Investors Service commented Monday that the firm’s recent share placing is “credit positive because it will enhance the company’s equity base and liquidity.”

Shenzhen-listed property group China Vanke Co.  surged 10% after the firm late last week said it would move its B-share listing to Hong Kong.

The firm’s Hong Kong-listed unit Vanke Properties Overseas Ltd surged 13.3% in Hong Kong after trading resumed following a suspension. Vanke Properties may be reorganized following China Vanke’s listing due to exchange rules, Reuters reported.

Hong Kong-listed telecommunications equipment maker ZTE Corp.  dipped 1.1% after warning about an annual loss. Mobile operator China Unicom Hong Kong Ltd. declined 0.9%.

South Korean stocks haven’t done so well lately, as many of the country’s exporters compete directly, with Japanese rivals currently benefitting from a drop in the yen against a range of currencies including the Korean won.

Losing more ground on Monday were auto makers Kia Motors Corp.   and Hyundai Motor Co. . Kia shares were down 2% and Hyundai’s, 1.4% lower.

Within Asia, “Korea is most vulnerable to a combination of stronger Japanese domestic demand and a weaker yen,” said Credit Suisse analyst Santitarn Sathirathai in a recent note. Read: Japan reflation winners and losers from Crédit Suisse.

“If a country is not part of the Japanese supply chain (or only loosely integrated) and have products that compete with Japanese goods, then its exports will lose competitiveness relative to those from Japan,” the analyst said.

Credit Suisse estimate that Korean real export growth will underperform that of Japan by about 1.1 percentage points as a result of a 1% depreciation in the Japanese yen/Korean won in three to six months.

Still, LG Electronics Inc.   gained 2%, helping to offset the auto-sector weakness.

Trading in Australia saw some declines for healthcare stocks, with blood products group CSL Ltd.   down 0.8%.

National Australia Bank Ltd.   rose 1.9%, however, following a report that Spanish banking giant Santander SA  may be interested in buying NAB’s U.K. branch operations.

Marketwatch