Japanese share prices are likely to remain under pressured as investors stay vigilant about problems in US sub-prime mortgages for now, analysts said. The market is also expected to be on the alert for any further rise in the yen, which hit a four-month high against the dollar on Wednesday before retreating, they said.
Japanese shares have fallen heavily despite solid corporate results, with the Tokyo Stock Exchange's Nikkei-225 index of leading shares dropping 303.95 points or 1.76 percent to 16,979.86 over the past week to August 3. The broader Topix index of all first-section shares lost 27.17 points or 1.60 percent over the week to 1,672.54.
"Concerns about sub-prime loans won't be erased, keeping pressure on share prices for the time being," said Masatoshi Sato, senior strategist at Mizuho Investors Securities. "Another sharp decline is now unlikely as Japan's economic fundamentals are not so bad," Sato said. "But at the same time a steady recovery is also an unlikely scenario," he said. "Sensitive trading is expected next week."
On Wednesday, the benchmark Nikkei index slumped by more than two percent to end below 17,000 points for the first time in more than four months after a heavy sell-off on Wall Street. Investors will look to the Federal Reserve monetary policy meeting on Tuesday, hoping to discover the US central bank's views on the US sub-prime lending issue, brokers said.
"Market players cannot help but continue paying close attention to the issue of sub-prime mortgages," said Hirokazu Fujiki, strategist at Okasan Securities. But he said Japanese share prices were relatively low and may attract some interest from foreign investors.
Exports-related issues were hit hard over the past week by a surge in the value of the yen, which rose to the 117 per dollar level amid uncertain prospects for the US economy, brokers said. The yen retreated to the 119 per dollar level by Friday as a rebound in global share prices helped to calm jittery currency markets, dealers said.
Political uncertainty added to the gloom following a July 29 election defeat for the Japanese government that could hinder reform efforts, dealers said. Although the main focus is on the US housing market problems, one potential market-moving event closer to home will be Wednesday's domestic machinery orders, which are seen as a key gauge of corporate capital investment. "June core orders are expected to fall 4.8 percent month-on-month for the first (drop) in three months, judging partly from weak leading indicators," Morgan Stanley economist Takehiro Sato wrote in a research note.
But he added: "Despite recent sluggish data in the machinery orders statistics, companies' investment plans have maintained a bullish tone." Toyota Motor shares will be in focus on Monday following the auto-maker's announcement after the close on Friday that its net profit had jumped some 32 percent in the three months to June to a record on brisk sales and a weak yen.
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