Gains may be limited by concern that companies will slash earnings projections before year-end book closing. After Friday's close, three steel makers - Kobe Steel, Sumitomo Metal Industries and NKK - widened their loss forecasts.
Japan's top 15 banks will probably get the Financial Reconstruction Commission's preliminary approval for about Y7,450bn (pounds 40bn) of public funds to be invested in preferred shares and other securities, government officials said.
"The FRC's moving ahead with confidence and that's good ... for the stability of the financial sector," said Sho Ikeda, the general manager of the investment research department at Nikko International Capital Management. "But it widens the gap between weak and strong banks; the latter will no doubt get a plum capital injection and will be able get rid of non-performing loans, and survive."
Banks with share prices over Y1,000 - Sumitomo, Bank of Tokyo-Mitsubishi and Sanwa Bank - will probably climb, he said. Japan's banks had Y73,000bn in problem loans on their books on 30 September. Dai-Ichi Kangyo Bank may gain if investors focus on the bank's move to cut 3,800 jobs by March 2003 and boost bad-loan write-offs to Y970bn, rather than the reversal of its earnings forecast from a Y15bn net profit to a Y450bn net loss.
The benchmark Nikkei 225 stock average rose for the fourth week in five, adding 0.54 for the week, to close at 13,973.69. Next week it will probably move between 13,800 and 14,500, Mr Ikeda said.
Market gains will be capped as the outlook for corporate earnings dims and companies cut forecasts. Market participants are bracing themselves for more cuts. "The market in Japan is very reactive to downward earnings revisions," said Garry Evans, a strategist at HSBC Securities.
With the yen strong and the fall in bond prices unlikely to weaken it in the near future, investors will continue to shift into domestic stocks, including "defensive" issues such as food and pharmaceuticals.
Mitsubishi Chemical, Japan's top chemicals company, was the Nikkei's biggest gainer for the week, climbing 18 per cent.