That may be partly offset by gains by top exporters, such as Sony and Honda, on expectation that they'll profit from the yen's fall.
Japanese bonds are likely to be little changed as the benefits to bondholders of economic recession could be offset by shrinking confidence in the country's financial system.
"The question is whether trouble in the financial system could raise short-term interest rates," which makes it hard for investors to buy bonds, said Kikuo Shirose, manager at Tokyo - Mitsubishi Asset Management.
In the week just ended, government bond yields rose 4.5 basis points to 1.21 per cent. Declining Asian currencies make it more difficult for borrowers in the region to repay dollar-denominated loans. Should the crisis deteriorate, money market lenders may become reluctant to lend to banks. That could send short-term interest rates higher and cause bonds to fall.
Yet, many investors are not so pessimistic about the outlook for bonds, given the shaky outlook for the economy. "Nothing has changed," said Akitsugu Bando, at Okasan Capital Management. "I'm confident investors will buy bonds on dips."
Such a view was supported as Japan's GDP shrank 1.3 per cent in the first quarter from a year earlier, pushing Japan into recession. The Nikkei index fell 1.96 per cent and will probably trade between 14,500 and 15,500 this week.
The yen fell to an eight-year low of 144.03 to the dollar and the exodus of foreign investors is likely to continue.
"There are people gambling that the market will go lower," said an analyst at Schroders.
Banks fell 6 per cent on concern about the risk of default on some of the $133.5bn which Asian borrowers owe Japanese banks. That's in addition to the 77 trillion yen in bad and risky loans that Japanese banks already have on their books.
Moreover, the stream of credit agency downgrades will probably continue to spur investors out of bank stocks. "A lot of the largest banks - trust and city banks - are really in serious trouble," said Robert Reiner, director at Bankers Trust.
"The Japanese government has to let these banks fail - they have no choice anymore."
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