Investors in Tokyo are looking to the European Central Bank (ECB) and the United States Federal Reserve for further stimulus measures next week but worries over the high yen could drag down sentiment, analysts said on Friday.
Expectations for policy steps to contain Europe's debt crisis increased following Thursday's comments by ECB President Mario Draghi, who said the bank was ready to do "whatever it takes" to preserve the euro.
"And believe me it will be enough," he told a business conference in London, warming investor sentiment around the world, including in Japan where the Nikkei trimmed losses made earlier in the week.
"The head of a central bank saying 'believe me' carries weight," said Hiroichi Nishi, general manager of equity division at SMBC Nikko Securities.
In the week to July 27, the Nikkei 225 index at the Tokyo Stock Exchange slipped 1.19 per cent or 103.23 points to 8,566.64.
The broader Topix index of all first-section shares fell 1.00 per cent or 7.38 points, to 726.44.
Nishi said Japanese shares remained undervalued and should attract investors.
Easing concerns over Spanish sovereign debt and expectations for stimulus measures globally were boosting market sentiment, said Yoshihiro Okumura, general manager of research at Chibagin Asset Management.
Madrid's benchmark 10-year bonds fell to 6.899 per cent on Friday which, although still high, is well down from the near eight per cent levels seen earlier in the week.
"There are... expectations for additional easing steps at the FOMC (Federal Open Market Committee) and ECB meetings next week," Okumura said.
But concerns remained over a strong yen weighing on the market, said Credit Suisse economist Hiromichi Shirakawa.
"Even if the market tilts toward a risk-on condition, we cannot deny the possibility that a high yen would cap the top side of the market," he said.
