TOKYO STOCKS OUTLOOK UNCERTAIN DUE TO YEN, OPEC
Prospects for Tokyo stocks are mixed this
week with investors trying to figure out the future of the
yen/dollar exchange rate and digest the implications of OPEC's
latest accord on crude output and pricing, brokers said.
    They said the market should extend the dull trend it has
been in since the 225-share index fell rapidly from the record
close at 25,929.42 on June 17.
    It ended at 24,902.72 on Saturday and fell further this
morning to close at 24,707.68 in an uncertain reaction to the
weaker yen and the weekend OPEC accord.
    Brokers said attention could focus more on the cheaper,
less well-known stocks in the exchange's first and second
sections, which were generally showing more resilience. The
second section index, in contrast to the first, closed at a
record 2,404.64 on June 26, surpassing the peak set on June 17
of 2,401.71.
    "Probably shares of companies involved in the domestic
economy are a good bet," said a broker at Daiwa Securities Co
Ltd. He said his observation was based on figures showing that
business activity in Japan is booming.
    The government said on Friday that department store and
supermarket sales rose 7.5 pct in May from a year earlier,
while orders received by Japan's 50 major construction firms in
the same month were up 7.6 pct year on year. Brokers expected
more such figures, but said many stocks linked to domestic
demand remain overpriced.
    "They are hard to find, but companies with an attractive
niche in the domestic economy, unaffected by currency
movements, are the best bet," said a broker at a foreign
securities house who declined to be identified.
    But sharp rises in money supply and voracious domestic
consumption are stirring inflation fears. The consumer price
index rose 0.2 pct in May from April, the third consecutive
month on month increase.
    Although investors are not unduly worried about inflation,
which erodes the real value of stock holdings, they say rising
prices arouse concern that interest rates may climb.
    The recent market advances have been assuming a further cut
in Japan's 2.5 pct discount rate. Such assumptions have now
died, discouraging investors, brokers said.
    If oil prices rise, the stock market in Japan could suffer
a downturn as higher production costs stir inflation.
    But share prices of Japan's oil importing companies may
also firm, brokers said. "I have never been able to justify this
because it should mean that the cost of importing rises," said a
broker at Yamaichi Securities Co. "It just always happens."
    Export-oriented companies may continue their recent rally
if the dollar climbs against the yen. But prices of many blue
chip exporters have risen fast over the last two weeks, making
them look less attractive, brokers said.
    However, if the dollar falls to about 140 or 138 yen, the
market index may rally, brokers said. A lower dollar could damp
down rising capital outflows into dollar investments from
Japan's stock and bond markets, brokers said.
    And as the yen/dollar rate is supposed to reflect the
balance of trade between the United States and Japan, a lower
dollar would bring more pressure on Japan to expand its demand
for American imports by stimulating its local economy, brokers
said.
    "If the dollar falls, buy domestic, if it rises, maybe buy a
few exporters," said one foreign broker.
 REUTER
