TOKYO Japan's Nikkei average hit a one-week high on Friday, lifted by gains in some battered cyclical stocks, but Nikon Corp tumbled on reports of poor earnings and carmakers were sold off on concern about plummeting sales in China.
The Bank of Japan's decision to stand pat on policy briefly sent the benchmark into negative territory in the afternoon, as it struck a more pessimistic tone on the state of the economy, adding to worries about weaker profits as company results season fires up.
Caution ahead of U.S. jobless data later in the day also capped gains.
The Nikkei edged up 0.4 percent to 8,863.30, its highest level since last Friday, as investors scooped up riskier assets such as miners and shippers after both sectors were hurt by concerns about the global slowdown. The mining subindex .IMING.T moved up 1.5 percent while shippers .ISHIP.T advanced 2.1 percent.
However, the benchmark lost 7 points on the week after sputtering down in thin volume for the first few days on a lack of incentives to buy.
Reinforcing concerns that many companies are preparing to slash profit forecasts in Japan's imminent earnings season, Nikon Corp (7731.T) shed 4.8 percent, extending Thursday's 3.6 percent drop after the Nikkei newspaper said its interim operating profit would drop 43 percent on the year.
"Many investors favor Nikon as their only pick in the tricky consumer electronics sector, so when its valuation takes a hit people have to readjust their positioning," said Shigeo Mito, manager of equity investment at Sumitomo Mitsui Trust Group.
"I reckon about 80 percent of export-dependent firms are going to cut their earnings forecasts, so a lot of investors are taking flight to safer stocks that are more focused on the Japanese market," Mito added.
However, as this shift started even before the last quarterly earnings season, when 54 percent of Nikkei companies reported results below analysts' expectations, some doubt that domestically-oriented stocks can continue to meet expectations.
"We've come to a point where people are worried that the declines in profit forecasts that were priced in last time are going to get even worse," said Makoto Kikuchi, CEO of Myojo Asset Management.
For this quarter's results, SmartEstimates from Thomson Reuters StarMine expects an average negative earnings surprise of 1.2 percent.
Seven & I Holdings Co (3382.T) Japan's top general retailer, lost 4.2 percent after trimming its annual outlook due to a 2.5 percent drop in quarterly profits as weaker sales at its supermarkets offset growth from its convenience stores.
"Japanese stocks are no longer looking cheap because they have far too much capital compared to their U.S. counterparts," said Kikuchi of Myojo Asset Management.
"They should really cancel more shares to improve return-on-equity, but they won't do so unless they really feel the heat."
The benchmark Nikkei is up 4.8 percent so far this year, trailing a 16.2 percent rise in the S&P 500 and an 11 percent gain in the pan-European STOXX Europe 600 .STOXX index.
Overnight, the S&P 500 .INX extended gains to a fourth day, putting it on the cusp of a new five-year high if Friday's jobs report shows encouraging signs for the labor market.
Economists in a Reuters survey forecast 113,000 jobs were created in September compared with 96,000 jobs in August, while the unemployment rate is seen at 8.2 percent, versus 8.1 percent in August.
MUJI MOVES UP
Ryohin Keikaku Co Ltd (7453.T), the operator of household goods and apparel store Muji, climbed 4.3 percent after it raised its operating profit forecast for the year ending February 2013 after first-half earnings were solid.
Toyota Motor Corp (7203.T) shed 1.6 percent after a source with knowledge of the matter said its sales in China fell 40 percent in September from a year earlier to around 50,000 cars, and the decline will likely force the company to miss its sales target of 1 million cars there this year.
The steep drop was likely due to growing anti-Japanese sentiment on the back of a territorial dispute that has sparked protests and boycotts of Japanese products and goods.
Honda Motor Co (7267.T) dropped 0.5 percent and Nissan Motor Co (7201.T), which has higher exposure to China than Toyota, fell 1.5 percent as investors feared similar revenue misses from the Japanese automakers.
In contrast, other foreign brands such as BMW (BMWG.DE) and Daimler's (DAIGn.DE) Mercedes-Benz enjoyed higher sales in China last month.
The broader Topix .TOPX index edged up 0.2 percent to 737.13 in relatively light trade, with 1.49 billion shares changing hands, less than Thursday's 1.64 billion but more than the early days of the week.
(Additional reporting by Dominic Lau; Editing by Kim Coghill)