Tokyo shares are tipped to maintain their gains next week on optimism that upcoming earnings reports from major Japanese firms will illustrate a faster-than-expected recovery from the March 11 disasters.
However, risk factors such as the yen's relative strength versus major currencies will weigh as the United States continues urgent debt negotiations and markets react to the latest efforts to shore up eurozone economies. "Stocks will move higher as Japanese firms' earnings reports will likely show an earlier-than-expected post-quake recovery," said Kenichi Hirano, operating officer at Tachibana Securities.
"While foreign exchange moves need to be cautiously watched, the Nikkei is likely to be supported by corporate earnings," said Hiroichi Nishi, equity general manager at SMBC Nikko Securities.
"Japanese firms' supply chains have been normalising following their disruption" caused by the March 11 earthquake and tsunami, Nishi said.
Japan posted its first trade surplus in three months in June, data showed Thursday, indicating that the world's third-largest economy is recovering from the twin disasters.
The 9.0 magnitude earthquake and ensuing tsunami devastated Japan's northeast, leaving 20,000 dead or missing and causing massive production disruption, sending shipments of cars and other key export products plunging.
In the week to July 22, the Nikkei index at the Tokyo Stock Exchange gained 1.58 percent, or 157.64 points, to 10,132.11. The Topix index of all first section shares added 1.10 percent, or 9.45 points, to 868.81.
Favourable quarterly earnings reports from US firms brightened sentiment.
Stocks got a further boost in the wake of a new European Union-IMF bailout deal for debt-ridden Greece struck Thursday, easing worries of Greek debt contagion across the region.
The Nikkei index may test 10,400 next week if earnings turn out strongly and if the dollar strengthens against the yen following progress in US deficit reduction talks, Cosmo Securities analyst Toshikazu Horiuchi told Dow Jones Newswires.
Amid a political stand-off, President Barack Obama's Democrats are struggling to reach an agreement with Republicans over raising the nation's debt limit by the August 2 deadline in order to avoid default.
"The US deficit reduction talks are largely a political event and not many market players actually think the US government will default, but it still weighs on equity market sentiment," Yutaka Miura, senior technical analyst at Mizuho Securities, said.
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