Japanese stocks will likely to take their cue from currency markets and a slew of corporate results amid nervousness about the impact of the stronger yen on exporter earnings, dealers said on Friday.
They said investors may refrain from buying as the domestic results season gets in full swing and with Wall Street still jittery about the fallout from the US mortgage and credit market woes.
Japan's stock market tumbled over the past week, with the benchmark Nikkei-225 index losing 516.8 points or 2.98 percent to end on Friday at 16,814.37, the lowest closing level since September 28. The broader Topix index of all first-section shares declined 68.2 points or 4.11 percent to 1,591.28.
Dealers said they will closely monitor a flurry of Japanese corporate earnings to be announced. While many companies are enjoying brisk earnings, analysts are worried the outlook for exporter's profits.
Japanese exporters have benefited greatly from the weakness of the yen, so investors react nervously to any sign of the currency appreciating. If the yen continues to strengthen, stocks could extend losses, they said. Japanese share prices could drop to as low as around 16,500 points, said Masayoshi Yano, strategist at Tokai Tokyo Securities Co.
But equally the market could stabilise if world finance ministers offered any encouraging comments at their meeting in Washington Friday, he said. "With the currency trading here being so volatile and the subprime woes still stalking the market, if the G7 finance chiefs say something (to steady currencies) it would help stabilise the share prices," Yano said.
The dollar hit a near three-weak low against the yen in Asian trade Friday as the market fretted over gloomy prospects for the US economy.
Analysts said investors will try to find clues next week on whether the Fed will cuts its interest rate again, a move that would be likely to buoy Wall Street and provide a positive lead for other stock markets. "Investors will continue to examine whether the Federal Reserve will lower rates by 25 basis points or 50 basis points, or leave rates unchanged at its next monetary policy meeting" at the end of this month, said Kazuhiro Takahashi, equity general manager at Daiwa Securities SMBC.
Yano at Tokai Tokyo Securities added: "More economic data will be released in the United States next week, and may lead to another cut at the Federal Open Market Committee meeting" scheduled for October 30-31.