Japanese share prices may face selling pressure next week due to worries over the health of the world's second-largest economy after recent weaker-than-expected data, dealers said Friday.
Investors will also trawl through the earnings reports of Japan's major banks to gauge the strength of the overall economy while looking closely at weekend remarks from Group of Eight finance ministers, they said.
For the week to May 18, the Tokyo Stock Exchange's Nikkei-225 index of leading shares lost 154.14 points or 0.88 percent to close Friday at 17,399.58, giving up most of the previous week's 0.91 percent gain.
The broader Topix index of all first-section shares fell 27.40 yen or 1.59 percent to 1,695.69 following a 1.11 percent increase the previous week.
"Prospects for the economy are now very unclear, which is discouraging a number of investors here," said Okasan Securities strategist Hirokazu Fujiki.
"In particular, figures on investment and production are getting weaker."
Although the US economy appears to be overcoming negative factors, that will not necessarily lift Japanese stocks, Fujiki said.
Japanese economic growth slowed sharply in the first quarter of 2007 to a quarterly pace of 0.6 percent, while core machinery orders slumped unexpectedly by 4.5 percent in March from February, figures showed this week.
"Our concern is that figures on the Japanese economy are expected to get worse, at least over the next few months," said Fumiyuki Nakanishi, a broker at SMBC Friend Securities. But he said that if the major banks signal improving economic conditions that would be positive for the market.
A further boost could come from the Japanese currency, which hit a three-month low against the dollar Friday, giving a lift to the competitiveness of Japan's exporters.
"One of few positive elements for Japanese stocks is a weak yen, which may encourage investors to buy back export-related shares next week," Fujiki said.
Investors will be paying close attention to remarks from G8 finance ministers meeting over the weekend in Germany given concern in the United States and Europe about the weakness of Asian currencies. On the economic calendar, Japan's consumer prices will take centre stage on Friday with the market expecting a third straight monthly fall as investors look for fresh clues on when Japanese interest rates will next go up.
Many economists expect another quarter-point rate hike in the third quarter of 2007, perhaps in August or September, and Bank of Japan governor Toshihiko Fukui said, this week-rates could go up even if consumer prices keep falling.
"It remains possible that prices will not merely dip temporarily heading toward the summer, as in the consensus view, but instead, stay in negative territory throughout 2007," wrote Morgan Stanley economist Takehiro Sato.