Tokyo Market: Nikkei - Disappointment in the air

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The Independent Online
JAPANESE stocks may fall this week, paced by banks, and bonds are likely to rise on expectations that a government economic stimulus package to be released mid-month will disappoint.

The government is set to unveil its next set of measures aimed at re- booting Japan's frozen economy on 16 November. Yet officials have already dashed hopes by postponing deliberations on individual, corporate and residential tax cuts until January.

"The market has no patience for the government's lethargic approach" said Tomotsune Soga, director at Nikko International. "If the package is only about money but lacks vision, the market will give it a resounding no."

Last week, the yield on the benchmark government bond rose 1.5 basis points to 0.835 per cent. The government's foot dragging on tax cuts "will cause bonds to test their upper limits", said Xinyi Lu, chief strategist at Paribas Capital Market.

The benchmark Nikkei 225 stock average rose 4.1 per cent last week to 14,121.97. The gains are likely to be "one-off", said Kevin Hebner, strategist at Warburg, Dillon Read, who sees the market trading between 13,500 and 14,250 this week."Positive catalysts to encourage buying are unlikely to come from either the next supplementary budget or interim results season," said Mr Hebner.

Investors will be watching the half-year earnings from companies including Honda Motor, Shiseido, Olympus Optical and the JR railways.

"Most of the [earnings] to be disclosed will be worse than expected," said Kiyoshi Tsugawa, chairman of Lehman Brothers Japan. "That's the basic tune." Still, continued strength in the US economy may cushion losses in Tokyo, helping exporters.

Sumitomo Bank and Mitsui Fusdosan led Friday's retreat as investors worried that a delay in measures to rouse the country's dormant property market will increase banks' bad-debt burden and weigh down developers' profits.

Mitsui Fudosan, the country's biggest developer also said it changed its group profit forecast of Y10bn for the year to March to a Y16.5bn loss. "Almost all these shares have been bid up in the face of terrible earnings prospects solely on expectations that the government will get its act together," said Yosuke Mitsusada, a manager at NCG Investment Trust. "When those expectations slump, the shares are bound to follow." Copyright: IOS & Bloomberg