Japanese stocks are set to climb this week on a sudden slip in the yen on Friday, but the gains are likely to be small in a traditionally slow period ahead of the fiscal year-end.
Worries of a greater risk of inflation in United States after data late last week showed a jump in US consumer prices and a somewhat bearish outlook for Wall Street might also cap advances.
The dollar surged to a two-month high of around 109 yen in overnight Friday trade compared to around 107 earlier in the day, helped by news that Japan heightened security at 650 key facilities.
"The yen's fall was sudden, but it was not a completely new development. It had been easing. High-techs will benefit but it is not something the market is going to get into a flap about," said Tsuyoshi Nomaguchi, equity strategist at Daiwa Securities.
A National Police Agency official said security had been tightened at places such as nuclear power plants and government offices to guard against a possible terrorist attack.
But the security drive in itself was not seen having a major impact on the stock market, with participants saying that the news had merely provided a handy excuse for speculative funds, which had gone short on the dollar to unwind their positions.
Masaaki Higashida, deputy general manager of investment information at Nomura Securities, agreed the yen's weakness would only have a limited effect on share prices.
Attention will focus on shares in key exporters such as consumer electronics giant Sony Corp and auto makers Nissan Motor Co and Toyota Motor Corp which normally benefit from a weaker currency.
Both Nomaguchi and Higashida saw the Nikkei benchmark trading between 10,500 and 11,000.
Most said the market was expected to be less lively than last week with third-quarter corporate earnings largely over and the $2.3 billion initial public offering by Shinsei Bank out of the way.
Eight more IPOs are expected this week, although issues including electronic data-exchange service provider Planet Inc on the Jasdaq over-the-counter market and Nippon Care Supply Co Ltd on the "Mothers" market for start-ups, are not expected to cause as much excitement as Shinsei Bank.
Shares in Shinsei tumbled 9.55 percent to 748 yen on Friday, a day after its market debut, when it ended up 58 percent above its IPO price.
Traders said market sentiment might also be subdued by the government's announcement on Friday that it would unload all of its 31.7 percent stake in railway operator West Japan Railway Co.
More offerings of new and existing shares are expected to take place towards the fiscal year-end on March 31, meaning a possible oversupply.
Last week, the Nikkei climbed 1.54 percent, which was the strongest weekly gain in a month, helped by robust Japanese economic growth data for the October-December quarter.
On Friday, it edged 0.31 percent lower to end at 10,720.69.
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