Economic indicators, including September's unemployment and industrial production figures, and department and chain store sales, are likely deflate market sentiment. "The continued deterioration of the economy could pull the market lower," said Celia Farnon at Nomura Securities. "Retail numbers are appalling and unemployment is going from bad to worse. As we go into the results season, the earnings will be bad at best."
The benchmark Nikkei 225 stock average rose 6.5 per cent to 14,144.70 last week. It could fall as low as 13,500 this week, Farnon said. The market's gains were due in part to foreign investors buying back shares before new short-selling restrictions were put into place on Friday.
In addition, government support for the market in advance of the world's second-biggest initial public offering of NTT Mobile Communication Network - better known as DoCoMo - shored up the market for the new offering's first trading day on Thursday. "We had a technical rally based on short covering ahead of the new rules and the successful IPO of DoCoMo," said Barry Dargan at Massachusetts Investment Management.
The corporate earnings season kicks off this week with Matsushita Electrical and Sony reporting half-year earnings. Any disappointment could depress an already vulnerable market.
Bonds are likely to be little changed amid concern that the banks' credit risk may be amplified, prompting a flight of domestic investors to the relative safety of bonds and damping demand from foreigners. "There could be a tug-o'-war between those two conflicting moves," said Naomi Hasegawa, economist at Tokyo-Mitsubishi Securities.
Such concern about credit risk arose after Moody's Investors Service said it put four Japanese banks, including the Bank of Tokyo-Mitsubishi, Japan's largest bank, under review for a possible downgrade of their debt ratings.
Last week, the benchmark government bond rose, pushing the yield down half a basis point to 0.860 per cent. Bonds may also come under pressure if banks' credit risk leads to a downgrade of the country's rating.Reuse content