Japanese stocks will probably trade nervously in a narrow range this week until investors see the outcome of Tuesday's presidential election in the United States. Stocks would weaken slightly if Democratic Senator John Kerry won and would get a boost if George W. Bush won on hopes his re-election would lift some uncertainty over trade and currency policies, analysts said.
"The market's one and only focus will be on the US election and we can't do anything until we see the outcome," said Tsuyoshi Nomaguchi, a strategist at Daiwa Securities.
As quarterly earnings gathers pace in Japan, companies with bright prospects are attracting attention. Top auto maker Toyota Motor Corp announces results on Monday, Casio Computer Co Ltd is out on Thursday and Japan Airline Corp posts earnings on Friday.
Steel and shipping stocks could see some bargain hunting on optimism that a surprise rise in Chinese interest on Thursday will not spark a sudden downturn in China's fast-growing economy.
These sectors have been among the main gainers this year thanks to demand from China and China-related businesses.
After the market closed on Friday Mitsui & Co, Japan's second-biggest trading house, reported a sharp rise in net profit for the first half and raised its full-year profit outlook.
Others said they were interested in technology stocks such as Toshiba Corp, which reported strong half-year profits and raised its full-year forecast.
Many investors will also be looking for crude oil prices to retreat further from record highs, as they did last week.
ELECTION IMPACT: Uncertainty about Kerry's economic policy and a perception that he would take a tougher stand against currency intervention by Japan had boosted the yen's value against the dollar, some analysts said.
The dollar fell to a six-month low versus the yen last week, which could depress demand for Japanese exports and dampen Japan's economic recovery.
The Tokyo stock market will be closed on Wednesday for a national holiday, another reason why most investors would stay out of the market at the start of the week.
Traders expect the Nikkei average to move between 10,500 and 11,000 this week after ending on Friday at 10,771.42.
The Nikkei lost 0.75 percent on Friday after China's rate hike hit steel makers, shipping firms and other China-related businesses.
On the week, the Nikkei lost 0.79 percent, depressed by the dollar's fall against the yen and high oil prices, both of which could hurt the Japanese economy.
Hideo Ueki, chief investment officer at UBS Global Asset Management, said there was little scope for the market to rise.
US economic reports were mixed last week.
Gross domestic product (GDP) grew at an annual rate of 3.7 percent in the third quarter, below expectations of a gain of 4.2 percent, but business activity in the US Midwest grew in October at a much faster pace than expected.