Japanese stocks are expected to hover near current levels this week as investors keep a wary eye on oil prices and watch for signals that US interest rates might rise, while strong domestic fundamentals could provide support.
Analysts said oil prices were likely to remain the market's key focus. They said investors were not convinced that oil prices would fall much further even after Opec decided last week to boost its official output limit.
Investors will also be listening closely to US Federal Reserve Board chief Alan Greenspan, who will provide remarks on two occasions this week. Analysts said the chances of higher interest rates in the United States were bolstered by surprisingly strong jobs figures, released on Friday.
"A US rate hike has already been priced into stock prices, but investors will remain wary until they actually hear the news from the Fed's meeting on June 29-30," said Yutaka Miura, deputy manager of Shinko Securities' equity information department.
"What we want to see most is a clear sign of a decline in oil prices and Wall Street stability and until we see such signs, Tokyo stocks are unlikely to jump higher."
Still, Miura said solid fundamentals, such as a bright corporate earnings outlook and healthy macroeconomic data, are making many stocks look undervalued. Miura said bargain hunting for such stocks would provide support.
On Friday, the benchmark Nikkei average gained 0.92 percent to close at 11,128.05. For the week, however, it lost 1.61 percent - recording its first weekly loss in three weeks as concerns grew that higher oil prices might hurt the global economy and sapped buyers' appetite for equities.
Traders expect the Nikkei to move between 10,800 and 11,400 this week, but transactions related to Friday's settlement of stock index futures and options could cause some volatility.
Japan's core machinery orders for April, to be released on June 10, will also likely show an increase, helped by demand for digital electronics from export markets such as China. A Reuters poll of 30 economists produced a median forecast for a 1.9 percent rise in April core orders, following a 3.2 percent drop in March. The highly volatile data are regarded as a leading gauge of capital spending.
Meanwhile, the leaders of the Group of Eight industrial nations (G8) will gather at Sea Island, Georgia, in the United States from June 8-10, but analysts said the meeting was not likely to produce much market-moving news.