Japanese shares are expected to see volatile trade next week amid deepening fears of a global economic slowdown and as a persistently strong yen continues to squeeze a fragile post-quake recovery. In the week to August 19, the Nikkei index on the Tokyo Stock Exchange slumped 2.78 percent or 244.48 points to 8,719.24.
The Topix index of all first section shares lost 2.15 percent or 16.5 points to 751.69. After Tokyo's close on Friday, European stock markets opened broadly lower as global risk appetite continued to be eroded by recession fears. Analysts said that investors will next week maintain a cautious stance ahead of a key speech from US Federal Reserve chairman Ben Bernanke, with hopes pinned on some sort of gesture to soothe markets.
There is also speculation that Japanese authorities may again intervene in currency markets to weaken the yen, after officials ratcheted up their rhetoric this week. "Japanese shares are expected to remain subject to volatility overseas, but their trading range will be limited next week ahead of Bernanke's speech on August 26 (Friday)," said Yumi Nishimura, analyst at Daiwa Securities.
"The market is likely to maintain its risk-averse sentiment for now. Exporters are likely to stay under selling pressure as the yen is hovering near a record high."
According to the Nikkei business daily, more than 100 issues hit their lowest levels of the year on Friday, including Sony, Honda and Toyota. Japan's finance minister Yoshihiko Noda said Friday the government would start considering what long-term preparations are needed to soften the economic impact of the yen if it remains at current levels near its post-war high of 76.25. In a research note, Credit Suisse said Japan's auto sector faces likely restructuring, including eliminating yen-denominated costs, if the Japanese unit remains at current levels or further strengthens. The yen's recent strength has raised concerns about more Japanese production being shifted overseas as companies battle to remain competitive. Investors will also keep an eye on Japanese consumer price data due next Friday.