Election, global sentiment to guide Tokyo shares

Japanese shares may continue to gain ground in the coming week in line with world markets as concerns about the pace of recovery in the global economy continue to ease, brokers said Friday.
But trading is expected to remain cautious due to political uncertainties on the domestic front following Sunday's upper house elections, clouding the horizon for investor sentiment, analysts said. In the week to July 9 the Tokyo Stock Exchange's headline Nikkei index gained 4.15 percent, or 381.61 points, to 9,585.32, after losing 5.48 percent a week ago.
The broader Topix index of all first-section shares gained 3.64 percent, or 30.23 points, to 861.21 during the week. Market participants will be influenced by the outcome of Sunday's election if a lack of a majority makes it harder for Prime Minister Naoto Kan's government to push through fiscal reform policies, including likely tax changes. Three newspaper polls published on Friday suggested Kan's coalition might fall short of keeping a majority in the upper chamber, meaning he will face a deadlocked parliament unless he seeks new political allies.
"Attention has already been paid to how Prime Minister Kan will form his coalition in case his party falls short of keeping a majority," said Hirokazu Fujiki, an analyst at Okasan Securiites.
"Players may take a wait-and-see stance until Kan decides over his coalition as the government's economic policies may be substantially affected by its formation of a coalition."
External factors may help maintain buying sentiment, however. US shares posted gains towards the end of the week, buoyed by a drop in the number of Americans registering for jobless benefits and the IMF's upward revision of its global growth forecast on Thursday, brokers said. "This upward trend is likely to continue next week," said Masumi Yamamoto, equity market analyst at Daiwa Securities Capital Market. "As US stocks appear to keep recovering, Japanese shares are seen to follow suit."
Investors will keep an eye on a US retail sales report to be released on Wednesday, brokers said. Traders will also latch on to the results of "stress tests" by the Committee of European Banking Supervisors and national bank regulators.
They are intended to examine the health of Europe's banks and show whether financial institutions are in a position to withstand future crises such as those sparked by the collapse of US investment bank Lehman Brothers in September 2008.