Japanese stocks are likely to firm in the coming week, but investors will become increasingly cautious ahead of a Group of Seven meeting that may take up the weak yen, dealers said on Friday.
The Tokyo market has risen in the past week on the back of rallying US stocks, reassuring US Federal Reserve comments and solid domestic corporate earnings.
The weakening yen is seen as also helping Japan's export sector, a main driver of the economy.
Over the week to February 2, the Tokyo Stock Exchange's benchmark Nikkei-225 index gained 125.18 points or 0.72 percent to 17,547.11, hitting an interday six-year high on Friday. The index also rose 1.49 percent the previous week.
The broader TOPIX index of all-first section stocks climbed 14.38 points or 0.83 percent to 1,742.40, after gaining 1.72 percent in the previous week.
The Nikkei, however, remained top heavy as European and US financial officials expressed concern over the easing Japanese currency, said Masatoshi Sato, senior analyst at Mizuho Investors Securities.
"Charts show the Nikkei is in a direction to rise. But if you look at the broad picture, the upward momentum slows as the index shoots up," he said.
"The market is becoming cautious that G7 participants might take up the issue of the weakening yen, which leaves a risk for turbulence in the foreign exchange markets in coming weeks," Sato said.
G7 finance chiefs will meet in Germany next weekend, after US and European officials expressed their worries for the sliding yen, which gives Japanese exporters a trading edge.
Japanese officials, including Finance Minister Koji Omi, shrugged off speculation that the yen will be a priority at the G7 meeting.
Currency dealers said further selling pressure on the yen was likely to emerge after the G7 on growing expectations that the Bank of Japan will leave its super-low interest rates unchanged this month.
Government leaders have made clear they oppose a rate hike, arguing that Japan's economy is still fragile. "The G7 will be the key for the coming week," said Masayoshi Yano, a senior manager of investment information at Tokai Tokyo Securities. "There is a sense that the Nikkei will continue to rise in the immediate future. I don't expect the G7 will talk about the yen as a major topic, but we just have to wait and see," he said.
In the coming week, Sato said the Nikkei is likely to hover around 17,400-17,700.
"Instead of trying to test the top side, the market is likely to inch up while keeping a close watch on forex. It will be like taking two steps forward and one step back," he said.
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