TOKYO MARKET: Exporters expected to fall amid rate fears

Japanese Stocks may fall this week, led by exporters, amid concern that a possible rise in US interest rates may hurt consumer sentiment.

Canon and Sony may also come under pressure from the currency market, where the yen rose against the dollar on Friday following the government's unexpected revision higher of first-quarter gross domestic product figures.

"Concern about the currency and Wall Street will still weigh on the market," said Toshio Tahara, a general fund manager at Sumisei Global Investment Trust Management Co. "Yet, with many investors away on vacation, I expect the downside risk to be limited."

Last week, the Nikkei 225 index rose 350.93, or 2 per cent, to 17,435.17 points, rebounding from the worst week this year, when it fell 4.3 per cent between 2 August and 6 August. The Topix index fell 21.81, or 1.5 per cent, to 1,442.49 points.

Investors will watch for signs of inflation in the US when the July consumer price index is released on Tuesday. If the numbers are strong, concern that the Federal Reserve Bank will raise interest rates when it meets on 24 August will keep investors away from exporters whose earnings will be hurt by weaker consumer demand.

Canon, Japan's largest maker of office equipment, exports 83 per cent of its products, while Sony, Japan's second-largest consumer electronics company, exports 68 per cent of its goods.

Investors may also get a cue to sell exporters from the currency market, where the yen could rise further amid signs Japan's economy is getting back on track.

Figures released in Tokyo on Friday indicated that Japan's economy expanded a revised 2 per cent in the January-March quarter, up from an initial estimate of 1.9 per cent. Many traders were expecting the number to be adjusted lower, as the original estimate, released two months ago, surpassed economists' forecast of a 0.1 per cent expansion.

Japanese bonds are likely to fall this week as further signs of economic recovery may increase expectations that the central bank will allow overnight interest rates to rise earlier than previously thought.

Tomorrow, the Ministry of International Trade and Industry will release revised figures on industrial production for June. Output rose 3 per cent in June from the previous month, according to preliminary figures.

"If the IP figure is higher than expected, it could pressure bonds lower," said an analyst.