Japanese share prices are expected to remain volatile due to concerns about a stronger yen, the US credit crisis and the risk of a leadership vacuum at the central bank, analysts said on Friday.
They said investors would continue to take their cue from Wall Street and events in the currency market as they weigh prospects for further aggressive interest rate cuts by the US Federal Reserve.
"The market remains very sensitive to any signs of a slowdown or recovery" in the economy, said Toshikazu Horiuchi, economist at Cosmo Securities. "Players are expected to continue closely watching foreign exchange rates and moves on Wall Street next week," he said.
Investors will also monitor a potential stand-off between the government and the main opposition party over the nomination of Bank of Japan (BoJ) deputy governor Toshiro Muto as the next head of the central bank.
It remains uncertain whether the opposition will accept the government's candidate. Its rejection could cause a leadership vacuum.
"Confusion over the nomination of a new BOJ governor may be used as an excuse to sell shares," said Horiuchi.
During the past week to March 7, the headline Nikkei-225 index plummetted 820.22 points, or 6.03 percent, to end Friday at 12,782.80, the lowest closing level since January 22.
The broader Topix index of all first-section shares declined 76.51 points, or 5.78 percent, to 1,247.77. Stocks were pressured as the greenback hit three-year lows against the yen, raising concerns about the outlook for exporter earnings.
Markets were bracing for a possible weak US jobs report Friday that would stoke speculation of a heftier rate cut by the US Federal Reserve on March 18 than the 50-basis-point reduction previously anticipated, dealers said.
Uncertainty over the next head of the BoJ is also likely to weigh on sentiment next week, they said.
A feud between Japan's two largest political parties has raised fears in financial markets of a vacancy at the top of the central bank when current governor Toshihiko Fukui's five-year term ends in less than two weeks.
But analysts said there was also a possibility of a rebound in the Tokyo market as the current level is "too low."
"We could see bargain-hunting at anytime," lifting the Nikkei back above 13,000 points, Cosmo's Horiuchi said Tokai Tokyo's Sengoku added: "Investors will wait the moment for the market to rebound, which may be at any time. I don't think a turnaround will be totally out of question."
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