INTERNATIONAL MARKETS: TOKYO: No one wins as won weakens

Japanese stocks are likely to be volatile this week as turmoil in South-east Asia offsets a boost from a government package to revive Japan's stagnant economy. Bonds are likely to rise as investors remain sceptical about the ruling party plan to support the nation's financial system and expect a weak central bank report on business confidence.

The benchmark Nikkei 225 stock average will probably trade between 15,500 and 17,000, said Yoshinori Kato, at Cresvale International. The Nikkei fell 3.17 per cent last week to 15,904.30, closing below 16,000 for the first time since 25 November.

Turmoil in Korea may hurt shares of electronics exporters and steelmakers. That's because the recent plunge in the value of the won means stiffer competition in global markets from South Korean companies benefiting from a weaker currency.

The Korean won has lost 29 per cent of its value against the dollar in a week, as Korean companies and financial institutions scramble to buy dollars to pay foreign debt. A weaker won means Korean companies can cut prices overseas, and provide stiff competition in global markets for Japan.

Makers of semiconductor manufacturing equipment were hard hit last week. Advantest Corp fell 11 per cent, Tokyo Electron plunged 10.5 per cent to 4,840 and Shin-Etsu Chemical dropped 5.6 per cent. Steelmakers plummeted 15 per cent.

The Thai baht, the Philippine peso and the Indonesian rupiah fell to record lows as investors pulled funds out of the region, rattled by the depth of problems in South Korea. That fuelled a sell-off of electronic exporters such as Matsushita Electric Industrial on concern about shrinking overseas sales.

Bond traders were sceptical about the impact of a government plan to raise Y10, 000bn ($77.5bn) to support banks and jump start the economy, which would lead to more government borrowing.

"The scale of the package won't be big enough for a major impact [on the bond market]", said Yousuke Miyake, senior portfolio manager at Nissay Asset Management. No matter what the government comes up with, it will take a while before it can be put into practice.

The key is how stocks react. If they drop too much it would weigh on bonds, said Kikuo Shirose at Bank of Tokyo-Mitsubishi. Bank shares may get a boost but investors are pessimistic. "Next week's government package will give stocks a short-term shot in the arm, but it'll be utterly meaningless in the long term," said Kato at Cresvale International.

Copyright: IOS & Bloomberg