Tokyo market players are braced for nervous trading in the week ahead as they keep a close watch on developments in the European sovereign debt crisis, analysts said Friday.
The benchmark Nikkei index of the Tokyo Stock Exchange ended the holiday-shortened first week of the year lower after closing 2011 at its lowest year-end level for almost three decades.
The index lost 65.00 points or 0.77 percent to 8,390.35 in the three-day week to January 6 as the European debt crisis sent the yen to an 11-year high against the euro.
While pessimistic about the euro's recovery, investors awaited monthly US jobs data due later Friday to see how the world's biggest economy is faring.
"Market attention will focus on European events next week," said Yumi Nishimura, senior market analyst at Daiwa Securities.
"Unless the German-French talks provide progress in solving the debt problems, (the Nikkei) will likely stay in a trading band... around 8,500," she said. "Nervous trading will likely continue."
The Tokyo market will be closed on Monday for a public holiday. French President Nicolas Sarkozy will visit Berlin on Monday for talks with German Chancellor Angela Merkel. Italy and Spain plan bond auctions on Thursday while the European Central Bank is to make a policy announcement.
"The possibility of an interest rate cut (by the ECB) is low at the moment as European financial markets remain unstable," Nomura Securities said in a report.
"But the market is paying attention to whether additional (monetary-easing) measures will be announced," it said.
"We need to continue to watch how the European debt problems will go amid a growing view that major credit ratings agencies would change ratings on European sovereign debts soon," it said, referring to fears of downgrades.
Nishimura added there were some expectations that the European Union at a January 30 summit may announce new measures to counter the crisis but such chances were considered low.
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