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Tokyo Market: Exporters fear rise in US interest rates

JAPAN'S benchmark stock average could fall this week to 15,500, as the possibility of a slowdown in the US economy threatens sales of Japanese firms that export there.

Exporters such as Sony and Toyota may fall on concern that US economic growth could trigger a rise in interest rates. Both rely on the US for more than a third of sales. "The key question for global equity markets, including Japan, is what will happen to the US markets," said Chua Soon Hock, strategist at Sanwa Bank.

The Nikkei closed below 16,000 on Friday for the first time since March, ending at 15,972.68, down 2 per cent for the week.

Exporters could also fall because of a decline in the value of the dollar, which has sunk 2.1 per cent in the last five days against the yen.

Other companies that could move include those which reported earnings late on Friday. Sega Enterprises said it could post its third straight loss next year. It made its worst-ever loss this year as it wrote off inventory, its arcade business slumped and the Dreamcast home console made a lacklustre debut.

Government bonds are likely to fall as unemployment stirs investor concern that the government will sell more debt to fund spending to tackle the problem. Finance minister Kiichi Miyazawa said the government will spend "whatever's necessary" to boost employment. The jobless rate will probably reach a post-war high of 4.9 per cent in April, up from 4.8 per cent in March.

"I'm seeing a weak demand for long-term bonds because people are concerned about additional budgets," said Yasunori Kuroda, a fund manager at Yasuda Kasai Global Asset Management.

Last week, the benchmark government bond yield rose 11 basis points to 1.460 per cent. "The recent bull trend has pretty much finished," said Xinyi Lu at Paribas Capital Markets. "Talk of a supplementary budget will get more serious." City banks have been sellers over the past few days.

Even so, some investors are still looking for an opportunity to buy when bonds decline on the hunch that the government won't draft a large supplementary budget. They expect the Bank of Japan to arrest any rise in long-term interest rates by continuing to provide ample funds to the banking system. "Yields near 1.6 per cent look like a good level to buy," said Masahiro Kami, chief fund manager at SB Investment Management. "As long as short- term rates are low, long-term yields won't jump."