TOKYO MARKET: The suffering continues for exporters

SHARES in Japanese exporters may fall this week on concern that further gains by the yen against the dollar will reduce their earnings when repatriated. Retailers and pharmaceutical companies should gain because their earnings are less influenced by exchange rates and they are likely to benefit from economic recovery.

"Concern over exchange rates still lingers and exporters will continue to suffer," said Hajime Yagi at Meiji Dresdner Asset Management. "Yet many people who are encouraged by the improved economic outlook are not willing to sell." He expects the benchmark Nikkei 225 to trade in the 16,500-17,000 range after falling 2.7 per cent to 16,871.73 last week.

Toyota, Canon and other companies that rely on exports may fall if the yen gains further. Each one-yen decline in the value of the dollar means companies such as Toyota will lose several billion yen in group operating profit.

The currency, which recently traded at 104.48 to the dollar, is now worth 10.7 per cent more than the 117.01 average estimate used by Japan's 778 largest manufacturers when making their earnings fore- casts for the six months to 30 September.

Expectations that the yen will gain further will weigh heavily on exporters. "We expect the market to renew buying yen and for the dollar-yen to break 100," said Marshall Gittler, a global currency strategist at Bank of America in Hong Kong.

The yen rose almost 2.4 per cent last week after the Bank of Japan decided to keep policy unchanged, dashing expectations it would expand monetary supply to stem the currency's gains. "The misjudgement over the decision will still cost us," said Masaaki Higashida at Nomura. "The stock market will be on trial to see how it bears up against the yen's gains."

Buyers may target some domestic demand-related shares such as retailers as they see more signs of economic recovery. Investors will watch economic indicators such as Wednesday's preliminary industrial production report for August and Friday's household spending.

In addition, the Bank of Japan releases its tankan index of business sentiment for September on 1 October.

"The hopes for a better tankan figure will support the market," said Shigeharu Shiraishi, managing director at SG Yamaichi Asset Management.

"There are still some investors out there looking for a chance to buy."