Japanese shares face a test next week to see if they can hold above the key 13,000 points level against a backdrop of growing worries about the health of the US economy, dealers said on Friday. After dipping below 13,000 points briefly on Thursday, the benchmark Nikkei index managed to end the week slightly above the key line.
But sentiment was cautious after a bigger-than-expected fall in Japanese machinery orders, a key gauge of corporate capital spending. The headline Nikkei-225 index lost 479.92 points or 3.56 percent to 13,017.24 over the week to February 8, while the broader Topix of all first-section shares dropped 49.71 points or 3.72 percent to 1,287.15.
"Next week the subprime and credit woes will be in the spotlight again," said Daisuke Uno, chief market strategist of Sumitomo Mitsui Banking Corp. The focus on the subprime and credit problem would "not be a positive factor for share prices," he said.
The Tokyo market will be closed on Monday for a national holiday, so investors will be playing catch-up when they return to their desks on Tuesday. In particular markets will be digesting remarks from Saturday's meeting on finance chiefs from the Group of Seven rich nations here, which is set to be dominated by the subprime loan crisis and fears of a US recession.
Markets will also watch to see if currencies are discussed, even if most analysts do not expect any explicit mention in the G7 statement of the recent weakness of the dollar and the yen.
G7 ministers "will likely discuss how to slow the decline of the dollar against major currencies," said Uno. "With this in mind, share prices will not fall far below the 13,000 level," although they may drop back below the key line, he said.
The recent weakness of the dollar against the yen has raised concerns about the outlook for Japanese exporter earnings, although it has been compensated for by the continued softness of the yen against other currencies such as the euro.
Investors will keep an eye on how other major Asian markets perform when they reopen next week after the Lunar New Year holidays. Investors will also closely monitor the earning reports by European financial institutions next week, Uno said.
Japanese economic growth figures for the fourth quarter of 2007 will also be closely scrutinised on Thursday amid growing concerns about the health of the domestic economy. But analysts are hopeful that the economy managed to maintain positive, albeit sluggish, growth.