Japan Nikkei ends week positive, exporters up on yen

TOKYO Japan's Nikkei average rose 0.3 percent on Friday, reversing earlier losses, with exporters such as Canon Inc (7751.T) gaining as the dollar edged up against the yen to hold near a seven-month high hit this week. Toyota Motor Co (7203.T) extended gains after the world's biggest automaker kept its forecasts unchanged despite posting a 28 percent drop in quarterly net profit on a strong yen and slumping U.S. sales. The benchmark Nikkei .N225 gained 0.6 percent for the week after ending lower the previous week.

But market players were wary given the overall economic outlook after the Japanese government cut its view on the economy on Thursday, dropping the word "recovery" in a monthly report for the first time in nearly five years as raw material costs and a global slowdown push the world's No.2 economy towards a recession.

"Japan's economy is powered by exports, so of course it's inevitable that the U.S. economic slowdown would have an impact eventually," said Tadahiko Murai, general manager of equities at Nozomi Securities.

Others said relief at having made it through the Japanese earnings season, with the bulk of results now out, helped boost stocks on Friday and would likely keep the market well supported over the next few weeks.

"We're basically in a box and the downside's growing more and more solid around 13,000, with the market just moving volatilely rather than on any trends," said Tomomi Yamashita, fund manager at Shinkin Asset Management.

"Next week is likely to be quiet until (Japanese) GDP figures on August 13, with worries about poor figures in a tug-of-war with expectations of a possible government economic stimulus plan."

The Nikkei gained 43.42 points to 13,168.41, reversing a morning of falls as short-covering sparked by a firmer dollar emerged. The broader Topix .TOPX rose 0.1 percent to 1,259.93.

The dollar was fetching around 109.56 yen after earlier rising as high as 109.78 yen. A weaker yen helps Japanese exporters by making their goods more competitive overseas and bolstering profits when they are repatriated.

DRIVEN BY TOYOTA

Some in the market said Toyota's afternoon gains could in part be due to a sense that the weaker yen would improve its earnings, and that this sentiment had set off short-covering.

"The impact of the weak yen will wear off soon, but right now it's making the market very happy," said Masayoshi Okamoto, head of dealing at Jujiya Securities.

Others said bargain-hunters had emerged in force now that the earnings were out.

"There was a big risk of a downward revision. Also, the dollar is now more than 4 yen higher than Toyota's new assumed currency rate, and people think this may help," Shinkin's Yamashita said.

Toyota assumed a more favorable yen exchange rate, at 105 to the dollar and 161 to the euro instead of 100 yen and 155 yen. That would have boosted operating profit by 280 billion yen except Toyota said the gain would be lost through weaker sales.

Toyota rose 5.5 percent to 4,830 yen. It was the third biggest contributor to the Nikkei's rise.

Advantest Corp (6857.T) jumped 7.1 percent to 2,500 yen after Mitsubishi UFJ Securities raised its rating to "2" from "4", saying it expects demand for testers for next-generation dynamic random-access memory (DRAM) chips to grow in 2009.

Other exporters gained as well, with Canon Inc (7751.T) up 0.8 percent at 5,110 yen and Honda Motor Corp (7267.T) up 0.9 percent at 3,470 yen.

Banks, which suffered during morning trade on economic worries, pared losses. Top lender Mitsubishi UFJ Financial Group (8306.T) sank 2.8 percent to 845 yen and Mizuho Financial Group (8411.T) was down 1.7 percent at 468,000 yen.

Trade picked up, partly due to trades in connection with settlement of index options, with 2.29 billion shares changing hands on the Tokyo stock market's first section, compared with last week's daily average of 1.84 billion.

Declining shares outnumbered advancing ones by 834 to 763.

(Reporting by Elaine Lies; Editing by Michael Watson)