After reviewing a Nikkei Shimbun report on what to expect this week, it seems the outlook from within is not so bullish and more of a let’s wait and see what happens with U.S. earnings and other external factors. The 17,500 level will be a psychological point of resistance for the Nikkei 225. One issue is domestic analysts don’t see much positive (or new) news to buy on and at the same time don’t expect much bullishness from foreign investors. That said, there don’t appear to be any voices calling for a big pullback either. Japanese earnings season doesn’t kick into full swing for another week.

U.S. subprime issues are still at the forefront of market participants’ minds, but the big U.S. banks and brokerages might have done enough to convince investors everything will be okay from Q4 by warning of big losses and writedowns early. Most, if not all, those that issued warnings traded higher on the news. I’m skeptical, but sometimes you have to go with the flow, or the poor dead horse keeps getting beat. Contrary to the domestic outlook regarding foreign investors, there’s a growing belief that Japan is a good bet in Q4 since it has lagged the outsized gains across the rest of Asia. However, as the Nikkei summary pointed out, the Nikkei 225 Stock Average components trade at 18.3 times forward earnings compared to a 14-16 times foreward earnings range for European and U.S. stocks, meaning, yes Japanese stocks look cheap compared to China, but they are not the bargain they were a few years back.