Tokyo market; Hi-tech rally continues apace

JAPANESE stocks are likely to be little changed this week, as gains by hi-tech shares offset losses by banks on concern about credit risk in the wake of Nippon Credit Bank's nationalisation.

"We'll see a continuation of the phenomenal tech rally we're seeing in the US and other markets, including Japan," said Robert Reiner, at Bankers Trust in New York.

Bonds could fall as investors probably won't place bets with larger sales of bonds due in early January. Investors expect the government to sell Y1.8trn of 10-year bonds to help finance the government's supplementary budget to pull the economy out of recession.

"The market can't factor in the sale until it sees how the sale goes," said Kazuo Kojima, capital markets manager at Fuji Bank.

Last week the benchmark government bond yield rose 16 basis points to 1.320 per cent. Concern that a glut of bonds will flood the market has damped demand for bonds.

In stocks component makers with strong market niches, such as Nidec, which commands 70 per cent of the world market for spindle motors used in hard disk drives, or TDK and Alps Electric, could climb.

The benchmark Nikkei Average fell 1.5 per cent last week to 14,194.29. The Nikkei is likely to trade around the 14,000 level, said Takashi Miyazaki, strategist at Partners Asset Management.

Still, banks, which lost almost 5 per cent last week, may resume their slide as investors pull away from likely candidates for bankruptcy or nationalisation.

NCB, one of the three lenders that financed Japan's economic miracle, was put under government control on Sunday, only two months after Long- Term Credit Bank of Japan was nationalised. That may be a sign that the Japanese government is toughening its stance toward insolvent banks. Yet, unlike LTCB, which shrivelled to Y2 before being put out of shareholders' misery, NCB was nationalised at Y158.

"This highlights the unreality and scandal of Japanese share prices," said Robert Brooke, director of Brooke Research.

"It is the perfect example of the bank share price credibility gap."