A gloomy snapshot of the Japanese economy and jitters about the US auto sector are expected to hang over the Tokyo stock market, analysts said on Friday.
Official figures due to be released on Monday are expected to show that Asia's largest economy contracted at an annualised pace of more than 11 percent in the fourth quarter of 2008, according to consensus analysts forecasts.
It would be Japan's worst quarter since 1974 in the wake of the oil crisis. While the market may react negatively if the figures are even worse than expected, some analysts see scope for a rally later in the week.
"Japanese stocks could rebound sometime during next week ... as markets run out of bad news for a while," said Yukio Takahashi, analyst at Shinko Securities.
"But there may be renewed uncertainty depending on the restructuring plans of General Motors and Chrysler to be submitted by next Tuesday," he said. Both automakers must submit a detailed restructuring plan by February 17 as part of the requirements for government loans.
Investors will pay close attention to US housing-related data next week for clues on prospects for the world's largest economy, analysts said.
"With Japanese earning forecast downgrades out of the way for now, the Tokyo market's performance will be closely linked to movements in the US stock market and foreign exchange rates," Takahashi said. The Tokyo Stock Exchange's benchmark Nikkei-225 index ended Friday at 7,779.40, down 297.22 points, or 3.68 percent, from a week earlier, after a 1.03 percent rise from the previous week.
The broader Topix index of all first-section shares fell 26.25 points or 3.32 percent to 764.59.
The Bank of Japan will hold a two-day policy board meeting next week, but the outcome will have little impact on the stock market, said Ryuta Otsuka, strategist at Toyo Securities. "Investors are eagerly looking for signs of recovery in the US economy which export-dependent Japan relies on for its growth," Otsuka said.
The Bank of Japan has little scope to reduce its rock-bottom interest rates any further so it is seeking new tools to repair credit markets and rescue the Japanese economy from a deepening recession. Investors were also paying attention to a meeting of finance chiefs from the Group of Seven economic powers over the weekend, although they did not expect any market-moving news from the gathering. Otsuka and Takahashi both expect the Nikkei to move in a range between 7,500 and 8,000 points next week.