Japan's Nikkei average is expected to edge lower on Tuesday, looking to movements in the currency market for cues, as growing signs of weak economic growth dampened investors' appetite for risk.
U.S. stocks ended mostly flat after home builders' optimism hit a nearly 1-½ year low and a regional manufacturing gauge grew more slowly than expected, implying that the economic slowdown is continuing into the third quarter.
The dollar edged up against the yen in early Asian trade to 85.39 yen , but market players said the Japanese currency remained strong and that was likely to limit gains in stocks.
"The big issue for the Nikkei this week is whether it can stay above 9,000 or not," said Kenichi Hirano, operating officer at Tachibana Securities.
"While we're unlikely to see the Nikkei drop suddenly to 8,000 or 7,000, since the latest round of corporate earnings was good, should it fall below 9,000 there's likely to be a lot of investors dumping shares and it could go down to 8,500."
Japan's government has started considering additional steps to address the country's slowing economy and the stronger yen, Kyodo news agency said on Monday, citing government sources.
But market players said this was unlikely to have much of an impact on the Nikkei on Tuesday since nothing concrete had been decided or was likely to be for some time.
The benchmark Nikkei is likely to move between 9,100 and 9,300, market players said. It closed at 9,196.67 after dipping as low as 9,095.94, just a breath above a 13-month low of 9,065.94 hit last week.
In a sign that shares may open lower, Nikkei futures traded in Chicago closed at 9,145, just slightly lower than the Osaka close .
Technically, the Nikkei may be due for a bit of a rebound.
The benchmark dipped below its lower Bollinger Band on Monday before slightly coming back up, while its relative strength index (RSI) hovered around 39. Anything at 30 and below is considered oversold.
But over the longer term, last week's "death cross" of the Nikkei's 200-day moving average and 100-day moving average is likely to keep the benchmark under pressure, an analyst said. A "death cross" is often seen as a sell signal.
