The passage of a 30,000bn yen ($239bn) government bailout for banks has been delayed by opposition party demands that the package be debated separately from other bills.
A delay in the plan to shore up the financial industry is favourable for bonds, said Akitsugu Bando, portfolio manager at Okasan Capital Management. In the week just ended the yield on the benchmark government bond fell 4 basis points to 1.765 per cent.
Hikaru Matsunaga, chairman of Japan's lower house budget committee, will take over as finance minister from Hiroshi Mitsuzuka, who resigned Wednesday because of a bribery scandal involving ministry bank inspectors.
While Mr Matsunaga's selection gave the market comfort, the delay to the bank bailout will unsettle equities. The benchmark Nikkei 225 index may fluctuate between 16,500 and 17,000 next week, said one analyst: last week it fell by 160.64, or 0.96 per cent, to 16,789.11.
Bank stocks are likely to take a further beating following the scandal at the finance ministry, in which two ministry inspectors were arrested for accepting bribes from four of the banks they were charged to regulate. Financial shares may be further hurt by a report in the Nihon Keizai newspaper alleging that the finance ministry advised failed Yamaichi Securities to hide trading losses. Japan's new vice-finance minister Koji Tanami denied the report, but questions are being raised that the banks may not have fully disclosed all their bad loans.
Investors who bought into banks, builders and the other industries which rose as much as 40 per cent in the last two weeks will probably sell for the relative safety of top exporters.
Construction firms and materials makers, which had risen on optimism over the government economic stimulus, fell on Friday as investors decided that their prices looked higher than their profit outlook. Builders have been hit by declines in housing and construction starts as consumers hold back on spending after last year's 2 per cent income tax increase. Steel and materials makers have also been by hit by lower spending and the fall of Asian currencies.
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