Sony led the benchmark by 4 per cent last week after announcing plans to cut costs and reorganise its electronics business. The prospect of other global manufacturers such as Fuji Photo Film restructuring is likely to encourage overseas investors to increase their Japanese shareholdings.
But the market may be held back by banks, as the approach of the end of the fiscal year on 31 March ratchets up pressure on companies to cash in long-held stocks to offset extraordinary losses incurred as they restructure money-losing operations.
"Foreign investors who were underweight in Japan are being attracted back," said Nobuaki Kurisu, a manager at Maple Asset Management.
The benchmark Nikkei 225 average is likely to move between 15,700 and 15,000, Kurisu predicted. The Nikkei last week rose 4 per cent to 15,488.86. Its close on Friday at 15,502.14 was the highest since August.
Domestically oriented industries suffering from slumping spending and investment may start out the week on the wrong foot as figures show Japan's economy shrank for a record fifth straight quarter. While the decline was expected, it may dim hopes that recovery may be around the corner.
Japanese bonds are likely to be little changed, as investors see if a series of reports and scheduled talks by central bank officials reveal any signs that the bank will move to lower rates. On Friday, the Bank of Japan left short-term interest rates near zero to support the faltering economy although the decision was not unanimous, the bank said.
"Although there was no decision [to lower rates] today, still the focus will be on the BOJ's next move," said Naomi Hasegawa, an economist at Tokyo-Mitsubishi Securities. The market will pay close attention to "whether there's any sign of change in BOJ's traditional stance to use interest rates as a monetary policy tool".
Last week the benchmark bond yield rose 16 basis points to 1.715 per cent. Bond investors are looking to see if central bank members are leaning toward increasing bond purchases in the secondary market.