Japan market to weigh China tightening risk

The Japanese share market ended a holiday-shortened trading week Thursday with its focus on possible further Chinese credit tightening that could trigger a correction. Fresh Chinese consumer price data due Tuesday will provide further clues as to what measures Beijing may take next, analysts said, but added that Japanese shares would remain well supported on the strength of US stocks.
In the week to February 10, the benchmark Nikkei index at the Tokyo Stock Exchange rose 0.59 percent or 62.13 points to 10,605.65. The Topix index of all first section shares added 1.20 percent or 11.27 points to 946.63.
The Tokyo market will be closed on Friday for a public holiday. "Share prices have been stuck in a tight range, partly supported by US stock prices which are resilient" after recent rises, said Kazuhiro Takahashi, equity information chief at Daiwa Securities Capital Markets.
With the Japanese corporate earnings season almost over, investors will "pay attention to overseas data and events, which may push up (US) stock prices or cause a breather in the recent round of advances," he said.
Investor sentiment was weighed by "expectations that a string of rate hikes (in emerging market nations) will follow China's rate hike," Tsuyoshi Segawa, equity strategist at Mizuho Securities, told Dow Jones Newswires.
China's central bank on Tuesday raised interest rates for the third time in four months, as authorities ramp up efforts to tame inflation amid fears it could trigger social unrest.
The market will resume trading on Monday, shortly after the government releases October-December growth data, which is expected confirm Japan's slide to world's third biggest economy behind China. Japan's economy likely contracted in the three months due in part to the autumn expiration of government stimulus programmes. "The GDP data is expected to show a contraction but it is a reaction from the robust year-before performance. I believe it will hardly affect the market as it had already been factored in," Takahashi said.
"We are paying more heed to prospects for January-March or April-June as some figures point to a pick-up" in the economy, he said. Recent Japanese data have pointed to gradual improvement in the economy, including expanding exports, falling unemployment and improving consumer confidence.
The Bank of Japan will also finish its two-day policy meeting on Tuesday, with some analysts expecting officials to issue a brighter assessment of the economy to reflect recent momentum.
In the United States, retail sales data, due Tuesday, could also boost the global market, with expectations for a strong figure. Fresh US data for housing, production and regional manufacturing should also provide clues, analysts said.
Takahashi predicted the Nikkei would move between 10,500 and 10,750 next week.