Japanese share prices will likely to take their cut from a slew of domestic company results next week but optimism over upbeat earnings may be tempered by jitters about upcoming elections, dealers said on Friday.
They said the performance of Wall Street would also be a major influence amid concern about the impact of troubles in the housing market. The weakness of the yen means that Japanese exporters are expected to report another set of robust profits for the fiscal first quarter but they may be cautious about the outlook for the rest of the year.
"I think the numbers will be quite positive but the effect on the market limited. The quarterly results must be good because of the yen depreciation," said Morgan Stanley equity strategist Naoki Kamiyama.
However, good results would not necessarily reflect operational improvements. Firms are also likely to wait until the interim results season in October or November before upgrading their full-year outlooks, he said.
For the week to July 20, the Tokyo Stock Exchange's Nikkei-225 index of leading shares fell 81.02 points or 0.44 percent to 18,157.93. The broader Topix index of all first-section shares dropped 7.03 points or 0.39 percent to 1,776.17.
Leading companies including Nissan Motor, Honda Motor, Sony, Sharp, Canon, Matsushita Electric Industrial and Toshiba are all set to announce results next week.
Some market watchers were more hopeful the reports could give a boost to the Tokyo market, which has struggled recently after hitting seven-year highs.
"The market main focus next week will be earnings and there is a possibility that the Nikkei-225 index may move above the 18,300 points level if the results surprise on the upside," said Masayoshi Yano, senior market analyst at Tokai Tokyo Research Centre.
Investors will also be keeping a nervous watch on political developments in the run-up to the July 29 upper house elections, with Prime Minister Shinzo Abe facing the prospect of a defeat that could prompt calls for his resignation.
Abe has watched his support tumble over his 10-month tenure due to a series of scandals including massive bungling of pension payments. His woes contrast sharply with the popularity of his predecessor Junichiro Koizumi, who was also the darling of foreign investors thanks to his mantra of structural reform and a pet project to privatise the massive post office. "In Japan many people know that ... the ruling parties may most likely lose. International clients know less about it," said Morgan Stanley's Kamiyama.
"From the international clients' perspective, they bought Japan when the Koizumi cabinet started to do well," he said, adding that they may now become concerned about the sustainability of Japan's economic growth. "Investors may be a bit more pessimistic in the long term. On the other hand, in the interim results season we may have better earnings and from a corporate perspective (the election) is not a big issue in the short run."
On the data calendar, the main focus will likely be on consumer prices for June due out on Friday as investors look for clues on the likelihood of another interest rate rise by the Bank of Japan in August.