Sony, Fuji Photo Film and other companies that rely heavily on US sales are set to rise further if Japanese officials keep talking up the dollar, investors say.
The dollar rose to an 11-week high of Y120.75 on Friday following a chorus of official statements favouring a weaker yen. That bolsters exporters' dollar-denominated earnings when they're repatriated.
But the market may be hamstrung by banks as the approach of the end of the Japanese fiscal year on 31 March ratchets up pressure on insurance companies and other large corporate investors to improve their balance sheets by selling assets.
"The Japanese government has made it pretty clear that it can live with the dollar at Y120, and that's encouraging for the blue-chip exporters," said Hideo Kito, president of Tokyo Kito Investment Management. "But the end of the fiscal year gives the upper hand to sellers in this market."
The key Nikkei 225 average is likely to move between 13,800 and 14,200, Mr Kito predicted. The benchmark last week rose 0.9 per cent to 14,098.04.
Recent gains by bank shares on the back of a government bailout plan have increased the temptation to sell for cash-hungry companies. The Topix banks index has risen 3.5 per cent in the last two weeks, boosted by financial authorities who gave a preliminary nod to their request for Y7,450bn in emergency public funding.
Daiwa Securities said last week it wants to sell as much as Y50bn in shares it holds in other companies in the near future. Traders are also bracing for more unpleasant surprises as Japanese companies begin posting interim earnings en masse.
Matsushita Electric Industrial, Japan's biggest consumer electronics company, reports third-quarter results on Tuesday, and tiremaking giant Bridgestone meets the press on Friday.
Bonds are likely to rise as record-low overnight lending rates will probably encourage investors to seek higher yielding long-term bonds. Last week, the Bank of Japan cut the rate to a low of 0.15 per cent to help pull the economy out of recession. Last week, the benchmark bond yield fell 32 basis points to 1.760 per cent.Reuse content