Tokyo stocks will likely take a breather next week as investors digest news from a European Union summit seen as crucial to containing the eurozone's debt crisis, dealers said. Feuding EU leaders failed to agree a new treaty to tackle the debt crisis and began work on a separate pact for the eurozone.
But they struck a deal on several measures, including a so-called "golden rule" to tighten budgetary discipline as the move to avoid a repeat of the debt crisis that has threatened to plunge the world economy into recession.
The deal would include "automatic consequences" for countries whose public deficit exceeds three percent of gross domestic product, unless a powerful group of nations blocks it. "Up until now, we were disappointed many times by no exciting results from eurozone meetings," said Daisuke Uno, chief market strategist of Sumitomo Mitsui Banking Corp.
The benchmark Nikkei 225 index closed 1.48 percent lower on Friday, amid worries Europe will fail to muster the firepower needed to contain its debt troubles. The European Central Bank cut its key rates and boosted measures to help banks, but shied away from increased bond purchases, with its Italian president, Mario Draghi, saying it was for governments to solve the problem.
"Draghi's dismissive view prompted profit-taking in stocks that had gained previously on higher expectations," Hideyuki Ishiguro, supervisor of investment strategy at Okasan Securities, told Dow Jones Newswires. "Other policy measures were in line with the market view." Sumitomo's Uno said: "Many say the ECB results were disappointing, but it rather would have been a surprise if the central bank had done something striking.
"Investors do not expect much to come out of the EU meeting, either." In the week to December 9, the benchmark Nikkei 225 index at the Tokyo Stock Exchange lost 1.24 percent, or 107.29 points, to 8,536.46.
The Topix index of all first-section issues fell 0.81 percent, or 6.02 points, to 738.12. Uno said investors were looking ahead to a US Federal Reserve meeting scheduled for Tuesday. "The issue is no longer within the realm of eurozone but becoming a matter of whether major economies can co-ordinate or not," he said. "We are focusing now to see whether the Fed will offer to play a co-ordinating role." Uno expects the Nikkei to trade in a range between 8,300 and 8,700.