Japanese share prices face a huge test next week as shell-shocked investors watch to see whether the battered market can hold above the key 15,000 points level after its recent plunge, dealers said.
They said events on the foreign exchange market would continue to spill over into Japanese stocks after the yen's recent spike sent exporters, including heavyweight auto-makers, reeling as their earnings prospects worsened. Market watchers said it would take time for confidence to recover after Japanese share prices plunged by over five percent on Friday alone, suffering the biggest one-day point drop since April 2000.
The Nikkei index has now plunged by about 16 percent over the past month and is down more than 11 percent since the start of the year after crashing through some key-support levels as foreign funds dumped Japanese shares. "Overseas investors are massively selling shares," said Fumiaki Nakanishi, head of market research at SMBC Friend Securities.
"This is expected to continue for some time, (with the Nikkei-225) falling well below the 15,000 points level although the floor remains difficult to see." Retela Crea Securities market analyst Yoku Ihara was also cautious. "While the credit woes persist, the Nikkei 225 index could fall below the 15,000-point level," he said.
Central banks will also be in focus amid growing speculation that the US Federal Reserve may cut its benchmark interest rate when it meets next month, or even before unless the credit crisis lets up.
Japanese monetary policymakers gather on Wednesday and Thursday amid fading expectations of an interest rate rise here in light of recent market turmoil. "Unless there is a drastic improvement in the market, we now believe that the Bank of Japan will delay the rate hike until September," said J. P Morgan Securities chief economist Masaaki Kanno.
Some analysts were hopeful that there could be an easing of selling pressure next week. "I am optimistic that shares won't fall below 15,000 points and that they will rebound," said Ryuta Otsuka, head of research at Toyo Securities.
With economic fundamentals sound and corporate profits robust, "investors are selling too much, and so the market will hopefully correct itself," he said.
Over the week to August 17, the Tokyo Stock Exchange's benchmark Nikkei-225 index tumbled massive 1,490.41 points, or 8.89 percent, to end Friday at 15,273.68, the lowest close since August 7, 2006. The broader Topix index plunged 153.15 points or 9.38 percent over the week to 1,480.39.
Selling was fuelled by the sharp appreciation of the yen because of the problems in the US subprime mortgage sector for risky borrowers, said Kazuhiro Takahashi, an equity specialist at Daiwa Securities SMBC. "The foreign exchange is the major factor, so we are watching the currency market," he said.
Some analysts are hopeful that the yen may stabilise in the coming weeks, providing support to stocks.
If markets are sure that US and eurozone interest rates will not be cut in September, "the yen's appreciation is likely to come to a full stop," said Akio Yoshino, senior economist at Societe Generale Asset Management.
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