Tokyo shares seen to recover after week of turmoil

18 Jul, 2011

Tokyo shares may enjoy a rebound from this week's losses as the yen stabilises and investor fears potentially ease next week over debt woes in Europe and the United States, analysts said Friday. Shares felt the impact of the eurozone crisis and downgrade threats looming over US debt this week prompting the rise of the safe-haven yen versus the euro and dollar.
The strong yen deflated sentiment that had recently been lifted by signs of a faster than expected post-quake recovery, dealers said. But Tsuyoshi Nomaguchi, Daiwa Securities strategist, noted that the Nikkei index may head back towards the 11,000 level "if external factors such as the debt problems in Europe and a high yen calm down."
On Friday Italy was near the finishing line in racing to slash benefits and pensions with a 48-billion-euro ($68-billion) austerity budget to firefight the eurozone debt crisis lapping at its shores.
Leaders of the 17-nation euro area meanwhile are scrambling to resolve divisions over a new bailout for Greece and lay the ground work for a debt crisis summit that could take place as soon as Monday, officials said.
In the week to July 15, the benchmark Nikkei index at the Tokyo Stock Exchange slipped 1.61 percent or 163.26 points to 9,974.47, reversing a 2.73 percent gain earned the previous week.
But the broader Topix index of all first section shares lost 1.71 percent or 14.98 points to 859.36. The renewed worries over the Greek debt crisis and its possible spread to larger economies, such as Italy and Spain, pulled down European and US markets this week, weighing on Japanese shares.
Meanwhile ratings agencies threatened to downgrade US debt as the White House and Republican opponents remained at odds over a long-term plan to slash the huge US deficit. The country faces a risk of default if it fails to raise its $14.3 trillion debt ceiling by August 2.
Investors sold the euro and the dollar in favour of the yen, whose appreciation hurts Japanese exporters by making their products more expensive overseas and by reducing the value of their foreign revenues.
But the Nikkei and Topix held steady for the rest of the week, despite the steady surge of the Japanese currency to 79.20 yen to the dollar on Friday from 81.28 yen a week earlier. The indexes ended the trading week in positive territory, with Nikkei enjoying a 0.39 percent rise on Friday while the Topix added 0.29 percent.
Nomaguchi said investors are waiting for Japan's trade data, to be released on Thursday which might show a pickup in exports, thanks to supply chain recovery following massive disruption from the March earthquake and tsunami. US housing market data should also show improvement and could also buoy the US and Japanese markets, Nomaguchi added.

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