TOKYO MARKET; Analyst's credit fears force bond sales

JAPANESE government bonds may fall this week as speculation of a credit downgrade for Japan outweighs the positive impact of Finance Minister Kiichi Miyazawa's supply comments on 10-year bonds. Investors sold 10-year bonds after Moody's Investors Service said Japan's efforts to spend its way out of recession have proven ineffective.

Moody's implied Japan may be forced to issue more debt, leading the firm to downgrade its credit standing again.

During the week, the benchmark yield rose 10 basis points to 1.84 per cent. Wednesday was the one-year anniversary of the Moody's downgrade of Japan's credit rating to Aa1 from Aaa. Yet investors said that the impact of a further downgrade would be muted, compared with last year's move, as the market environment was much worse last year.

Japan's broad Topix index is poised to push past its 3.5 year high, led by telecoms shares such as Hikari Tsushin on the expectation that new funds will target these shares.

Oracle Corp Japan and other internet-related shares may also advance as SG Yamaichi Asset Management and four others prepare to start new funds, prompting some traders to buy ahead of its launch. "Mutual funds and traders will continue to be the main players," said Hajime Yagi, senior portfolio manager at Meiji Dresdner Asset Management. "IT issues are the theme at present."

The Topix index gained 3.1 per cent to close at 1,642.67.The benchmark Nikkei 225 stock index rose 1.7 per cent, to 18,570.84, during the same period.

Hikari Tsushin and other telecoms shares may extend. The Topix telecoms sub-index rose almost 60 per cent in the past eight weeks.

Asahi Life Asset Management will start Asahi Life Research Japan Stock Open and five other companies new funds at the end of November, including SG e-index Japan Fund by SG Yamaichi Asset Management.

Fund ABC by Daiwa Asset Management is also expected to attract a lot of money because its previous fund, "0101", started in September, has expanded its capital to Y350bn (pounds 2.04bn), more than 10 times its original size.