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Japanese shares likely to make little headway

TOKYO: Japanese shares are expected to make little headway this week as investors look for a clearer picture on domestic high-tech earnings and U.S. interest rates.

"The market's in a slightly corrective mode, but the longer-term outlook is still bullish so any selling is likely to be quite limited," said Masaru Yamano, general equities manager at Taiheiyo Securities.

The benchmark Nikkei average is forecast to trade between 18,500 and 19,300 points compared with last week's range of 18,897.75 to 19,442.58.

U.S. markets ended on a mixed note last Friday. The Nasdaq composite index ended at a third consecutive record of 4,235.40 points, but the New York market's Dow Jones industrial average extended its losses.

Traders said the weekend meeting of Group of Seven leaders should have a limited impact on the market, but the meeting's statement on the yen should help sentiment.

Japanese monetary authorities vowed to deal with the yen's strength, according to the G7 statement issued after Saturday's meeting of finance ministers and central bankers.

Some stock investors had squared positions on Friday, uncertain whether the meeting would address the yen's firm bias.

The yen ended in New York on Friday at 104.68 to the dollar as traders guessed the G7 meeting would not directly address currency issues.

A stronger yen can be harmful to shares in exporters and global manufacturers, especially high-tech firms, as it cuts into the yen value of the firms' overseas profits.

"The yen was not a key factor weighing on the market last week, so even if the G7 meeting helps the dollar gain against the yen, share prices shouldn't be that much affected," said a trader with a medium-sized brokerage.

Traders said investors in the high-tech sector should continue switching into cheaper growth stocks from blue chips like Sony Corp and Softbank Corp.

Some said Sony's third-quarter earnings on Wednesday should provide direction for other high-tech issues. Strong results could prompt gains across the sector, which has recently shown mixed performances after months of broad gains, they added.

But many said the market assumed results would be upbeat and that investors only wanted to confirm Sony was on the right track. Sony shares have been highly volatile over the past month.

Traders said concerns over the prospect of a steep rise in U.S. interest rates were weighing on Wall Street.

"The more the New York market finishes factoring in strong October-December corporate earnings, the more it becomes nervous about an interest rate hike," said Masaaki Higashida, deputy general manager at Nomura Securities.

Investors expect the policy-setting Federal Open Market Committee to raise rates by 25 basis points when it meets on February 1 and 2. But there are growing fears there may be a steeper hike, or that there may be more to follow.

"The consensus seems to be that Japan's economy is on a recovery track, but it's still very vulnerable to factors like Wall Street and dollar/yen movements," said a strategist. -Reuters