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Japan's Nikkei share average climbed 1.2% on Monday as buying in defensive stocks helped reverse early losses, nudging the benchmark out of bear market territory.
By the midday break, the Nikkei was up 152.14 points at 12,838.66 after trading as low as 12,549.82 on the back of weak US stocks on Friday. Monday's gain took the index above its 100-day moving average at 12,735.31 but remained below the Ichimoku cloud in a bearish sign.
"It's a mixed flow so far. It doesn't seem to be the type of guys that work on the cash side. It could be something else - high-frequency trading-driven or it could be retail-driven," a senior trader at a foreign bank said. "There is nothing on the cash side here."
Amid market gyration and uncertainty over whether the US Federal Reserve will start to scale back its massive stimulus, investors are likely to be cautious ahead of a two-day US central bank meeting starting on Tuesday.
The extreme volatility and big falls in the Nikkei in the past few weeks have been accompanied by disappointment over the government's recently unveiled growth strategy, which has led some investors to trim back their high expectations for Prime Minister Shinzo Abe's growth-spurring policies.
Within defensive plays, the food sector was up 3.3 % and Japan Tobacco gained 4.9 %, while Takeda Pharmaceutical Co Ltd rose 2.3 % and peer Eisai Co Ltd advanced 3.4 %.
The broader Topix index climbed 1.3 % to 1,070.22 in light trade, with volume at 31 % of its full daily average for the past 90 trading days, indicating relatively low conviction of the rebound.
The real estate sector, which had rallied 70% this year to May 22 as it is seen to benefit most from Japan's push to reflate the economy, remained under pressure.
It was the worst sectoral performer on Monday, down 2.9 %. The sector has lost 28 % from a 5-1/2 year high touched on April 12.
GOLDMAN UPBEAT
Goldman Sachs, however, remained upbeat on the market, maintaining its 12-month Nikkei target of 17,000, and said the pullback offered another opportunity to invest in reflation and consumption-related stocks.
"The yen is not the sole driver of Japan's profit recovery. Evidence is growing that consumption, production and housing investment are improving, so even if the dollar/yen averages 95 in FY2013-FY2014, EPS growth would still reach nearly 70 %," the brokerage wrote in a note.
Investors, mainly hedge funds, have been cutting their long Japanese equities and short yen positions on the Fed's stimulus concerns and after the Nikkei had rallied more than 80 % from mid-November to its 5-1/2 year peak hit on May 23.
The Nikkei volatility index dropped 4.9 % to 39.6 on Monday but remained elevated after hitting 46.2 on Thursday, its highest close since the March 2011 earthquake and tsunami. The lower the volatility index, the higher the investors' risk appetite.
The Nikkei has fallen 19.5% since hitting the multiyear peak on May 23, but is still up 3.9% since April 4, when the Bank of Japan unveiled sweeping stimulus measures aimed at breaking years of entrenched deflation and reviving growth. The benchmark is up 23.5 % this year.
