Japanese stocks could claw back some ground if corporate results continue to cheer investors and the Federal Reserve cuts interest rates as expected, dealers said Friday.
But they said there was always the risk of further losses as the market remains nervous about the possibility of a stronger yen, which is bad for exporters, and the health of the US economy and housing sector.
Over the week to October 26, the benchmark Nikkei-225 index lost 308.74 points or 1.84 percent to end Friday at 16,505.63. The index slumped to a one-month low on Monday following sharp losses on Wall Street, but regained some of the losses later in the week as several major Japanese companies posted upbeat domestic earnings results.
The broader Topix index of all first-section shares declined 17.31 points or 1.09 percent over the week to 1,573.97.
Dealers said stock prices appeared to have bottomed out and could rise next week if the Fed moves to further cushion the US economy from the housing downturn with another rate cut.
"The FOMC (Federal Open Market Committee) meeting next Wednesday will be the focus, and the market expects a rate cut," said Hideo Mizutani, chief strategist at Sieg Securities. "That will support the Tokyo market."
Investors will keep their eyes on another flurry of Japanese corporate earnings to be announced next week.
"On the whole, you can expect the remaining earnings reports to turn out to be brisk, judging from those already announced," Mizutani said.
Toyo Securities strategist Ryuta Otsuka was also optimistic. "The Tokyo market will enjoy a boost from the Fed's rate cut on Wednesday," he said.
On potential risk is currency movements. Japanese exporters have benefited greatly from the weakness of the yen, so investors react nervously to any sign of the currency appreciating.
But Otsuka said that the current level of the yen at around 114 to the dollar "would cause little problems to exporters."
Next week major Japanese companies such as Matsushita Electric Industrial, Hitachi and All Nippon Airways are slated to issue earnings reports.
The Bank of Japan also meets on interest rates on Wednesday, when it will also release its latest forecasts for economic growth and consumer prices.
But doubts are growing that the central bank will raise interest rates again this year with the Fed cutting borrowing costs due to worries about the outlook for the US economy.
Investors will pay attention to Japan's housing starts for September on Wednesday after sharp recent falls amid stricter building standards.