Microsoft, IBM and Ascend Communications are among US technology stocks announcing fourth-quarter earnings and traders expect them to follow Intel's lead in surpassing estimates. That would buoy shares in Japan's computer- parts suppliers and semiconductor equipment manufacturers. "A lot of high- techs will be coming out with earnings, and early results are above and beyond expectations," said Dhia Amir, trader at Nomura Securities. "That will definitely spill over into Japan."
Last week, the benchmark Nikkei average rose 1.5 per cent to 13,738.86. It may trade between 13,600 and 14,200 this week, Mr Amir said.
Optimism that the yen won't strengthen past 110 may soothe market fears. The Japanese currency fell to a 28-month low of 108.22 on Monday before the Bank of Japan was said to have intervened to sell the Japanese currency on Tuesday.
That could help exporters like Sony and Matsushita. "The yen's appreciating trend has been broken - the feeling is that the BoJ won't tolerate the yen going to 110," said Hideo Kito, president of Tokyo Kito Investment Management. "So people are thinking again about buying companies like Matsushita as well as the chip-makers."
Still, some investors remain bearish, concerned that Brazil's deteriorating economy may impede the US, whose economy may be at bursting point. "The US looks more and more like the Japanese bubble at the end of the '80s ... At the same time, Brazil is sliding closer to, if not over the edge," said Robert Brooke, director of Brooke Research. "Japan's financial markets will ultimately collapse under their own weight, but an extra shove from external events can only assist the process."
Government bonds are likely to trade little changed, as investors see if next week's 20-year bond auction will flood the market with new supply and outrun demand.
Last week, the benchmark 10-year bond yield fell four basis points to 1.673 per cent. The Finance Ministry is increasing monthly sale amounts for the remainder of this fiscal year. It also intends to sell a record 71.13 trillion yen in bonds in the next fiscal year, while limiting purchases to one-seventh of the bonds sold.
Investors may be reluctant to buy the 20-year bonds because longer-dated bond prices tend to be more sensitive to interest rate movements than shorter ones.