Japan's benchmark Nikkei 225 stock index fell 1.9 per cent last week to 17,647.45. On Friday, the index gained back 1.1 per cent of its 3 per cent slide in the first four days of the week.
"Japan's domestic economy is quite bad, and if you think only of the domestic, now is not a time to be buying Japanese stocks," said Toshiro Yoshinaga, manager of investment strategy at Yamaichi International Capital Management Co. "The only saviour is that Western economies are strong, particularly the US," - meaning strong sales for exporters.
The dollar's strengthening against the yen by as much as one yen on Friday may also help exporters.
Sony Corp, which relies on exports for about two-thirds of its sales, rose 2.6 per cent to 11,800. Mitsubishi Electric Corp, which makes consumer electronics, climbed 5.5 per cent to 444; Sharp Corp, a maker of audio equipment and computers, added 2.9 per cent to 1,080.
Car manufacturers rose 1.1 per cent as a group with Honda Motor Co rising 2.4 per cent to 4,350.
Stocks dependent on domestic demand, including contractors and retailers, may fall next week following a spate of bad economic news.
The Bank of Japan's "tankan" survey of business sentiment, released Wednesday, showed consumer spending has not recovered since an April sales tax increase with confidence fading throughout the nation's industries.
A parade of Japanese companies this week lowered their earnings forecasts for the half-year ended 30 September. Heavyweights ranging from Hitachi to Mitsukoshi to Mitsui Engineering & Shipbuilding Ltd cut profit forecasts or projected losses, blaming Japan's skidding economy. Of the 161 half- year earnings revisions announced since mid-September, 63 per cent have been lower.
Sliding land prices and record bankruptcies are also weighing on investors. Contractors as a group fell nearly 4 per cent this week. Japan's contractors are struggling to service 12 trillion yen in interest-bearing debt which has been left over from land bought during the 1980s asset-inflated bubble.
In contrast, Japanese bonds are likely to rise on pessimism that the economic outlook will remain too shaky to withstand higher interest rates.
Copyright: IOS & Bloomberg