Tokyo market; Little change expected

Nikkei

By Gary Schaefer and Michael Horn

JAPANESE stocks may be little changed this week, as gains by exporters on expectations that overseas sales will bolster profits are offset by declines by builders on concerns that more bankruptcies will rock Japan's highly leveraged construction industry.

"I see us moving between 15,000 and 15,700," said Yosuke Mitsusada, fund manager at NCG Investment Trust. "Pension money will support the downside of the market, but selling by foreigners will limit gains." The benchmark Nikkei 225 index last week fell 2.22 per cent, to 15,323.43.

Investors pessimistic about the prospects for domestic recovery are likely to buy exporters such as Sony and Honda Motor, betting that a weak yen and strong overseas economies will add up to growing profits. Builders may be sold after Mitsui Wharf filed for bankruptcy on Friday, reigniting concerns that more failures may be in store for industries such as construction, which are struggling under heavy debt burdens.

"Blue chips are the only thing investors feel comfortable buying," said Mr Mitsusada. "The US and European economies are seen as a safe bet, and the yen is obviously a plus."

Still, the yen, which fell as low as 139.38 to the dollar on Friday, may hurt banks and trading companies if it continues to tumble. A falling yen could drag down other Asian currencies, making it harder for companies in the region to repay their loans to Japanese lenders.

Japanese government bonds are seen to be little changed as investors are concerned that recent gains which have driven yields to record lows will discourage further investment.

The yield on government bonds set lows twice in the past week, touching a record low of 1.115 per cent on Tuesday. That's the lowest long-term interest rate in world history, below the previous record of 1.125 per cent recorded in Italy in 1619.

"I'll be waiting to buy bonds on dips," like most other investors, said Yasunori Kuroda, a pension manager at Yasuda Kasai Global Asset Management. "The weak economy isn't likely to pick up soon," he added.

Over the week the benchmark government bond, maturing in September 2005, rose, pushing the yield down 4 basis points to 1.165 per cent. Kuroda wants to buy bonds when the benchmark yield reaches 1.2 per cent.

Copyright IOS & Bloomberg.