Tokyo market: Profit warnings to spark falls

Japanese stocks may fall this week, led by exporters such as TDK Corp, as company forecasts warning that profits will slow this year spur foreign investors to reduce their Japanese shareholdings.

Leading exporters such as TDK, Fuji Photo Film Co and Nintendo are among a score of Japanese companies scheduled to report results for the year ended in March, as well as forecasts for the current year. Investors say most will disappoint.

"The blue chips are looking at profits slipping as much as 5 to 10 per cent this year," said Yoshio Inamura, manager at Mitsubishi Asset Management. "When foreigners see those kind of numbers, they'll want to underweight Japan even further."

Last week the benchmark Nikkei 225 index fell 452.10, or 2.90 per cent, to 15,149.00. The Topix index dropped 2.42 per cent to 1188.18.

Japanese bonds are likely to rise, following six straight days of record low benchmark yields, after a central bank official suggested the bank is leaning towards lowering interest rates. Bank of Japan deputy governor Yutaka Yamaguchi said a cut in the discount rate would have a positive impact on the economy. He added, however, that the bank would wait to assess the effect of government measures intended to lift the economy out of its slump.

"It's a one-way bet on rates," said Peter Morgan, manager at Banque Nationale de Paris. "There's no scenario now that points to a rise in official or market rates. That's made investors bullish on bonds."

Last week the benchmark government bond, maturing in September 2005, rose and the yield fell 10 basis points to 1.335 per cent. Some traders were concerned that the rise in bonds has been too fast. "This week''s rise has been very fast and it's unlikely to continue at the same pace next week," said Naomi Hasegawa, a strategist at Mitsubishi Securities.

Further signs of economic and political unrest in Asia will probably accelerate the selling of banks, which have loaned about $276bn to borrowers across the region. Investors remain concerned that Japanese lenders' home- grown bad-loan problem may be exacerbated by another failure in a highly leveraged industry such as construction.

Still, investors may be encouraged if politicians hint at additional measures to stimulate the economy during the run-up to next week's summit meeting of the G8 nations. "The politicians will probably try to talk up the market before the summit," said Mr Inamura. "But the only thing investors want to hear is a promise of permanent income-tax cuts."