Japanese stocks may struggle to move higher this week as investors are unlikely to buy aggressively before a Group of Seven finance ministers meeting, while some blue chip shares look ripe for profit-taking.
As the market digests another slew of earnings reports from top firms like Matsushita Electric Industrial Co and Sharp Corp, analysts expect the Nikkei average to trade in a range between 10,500 and 11,000.
"Earnings will hit a peak next week and investors won't do much except wait and see how they turn out," said Tsuyoshi Segawa, an equity strategist at Shinko Securities.
On Friday, the technology-laced Nasdaq Composite Index fell 0.10 percent after US fourth-quarter US gross domestic product (GDP) data came in below Wall Street forecasts, which may hold the Nikkei back on Monday.
US GDP rose at a four percent annual rate in the final 2003 quarter, less than half the third-quarter's 8.2 percent pace as consumers held down spending. Wall Street economists had forecast a 4.8 percent increase.
Last week, the Nikkei lost 2.6 percent as weakness in the dollar against the yen spurred selling in exporter and technology shares, which had posted heady gains on hopes of booming sales of digital electronics goods.
News that Japan spent a record 7.1545 trillion yen, equivalent to $67.56 billion at Friday's rate, in the currency markets in January trying to hold down the yen will underscore concern about the weakness of the dollar, which reduces exporters' overseas earnings in yen terms.
Stock market players expect the Bank of Japan to step in to halt further drops in the dollar against the yen in the run-up to the G7 meeting on February 6-7.
The Nikkei has so far lost about 20 percent of the rise it logged between mid-November last year and mid-January this year.
Optimism about sales of digital cameras and other digital products is still high, but analysts said some of the technology shares appear to have been overbought.
Sharp, Japan's largest liquid crystal display (LCD) maker, has gained 13.4 percent in the past two months, while the Nikkei has eked out a 3.7 percent rise over that period.
Steel shares, which have shined because of anticipated strong demand in China, may also face profit-taking, analysts said.
Shares in Japan Steel Works Ltd jumped 25.6 percent in January, compared with a one percent rise in the Nikkei.
With the end of fiscal year drawing near, the market is also expected to face selling pressure from institutional investors hoping to dress up their books.
But analysts say the undertone remains bullish. Atsuto Sawakami, who manages about 60 billion yen ($567 million) of Japanese stocks for Sawakami Asset Management, said he was ready to scoop up stocks on price dips.