THE Japanese stock market capped a terrible week on a depressing note yesterday as investors dumped stock in the wake of disappointing corporate earnings and the Government's apparent reluctance to provide the market with positive news. The benchmark Nikkei 225 tumbled 496.55 points, or 2.88 per cent, to 16,726.37 making the slide for the week 6.7 per cent or 1,214.82 points. The broader-based Topix index fell 47.31 points yesterday, or 3.21 per cent, to 1,424.54, and 115.05 points, or 7.4 per cent, for the week. The plunge lends weight to this week's doomsday prediction by Nomura Research Institute Europe in London that the Nikkei index could drop to 12,000. Yamaichi International (HK) director and head of sales Moniwa Susumu said sell orders flooded the market because investors saw no indication of an economic recovery from interim results issued recently. This pessimistic outlook was reinforced yesterday when the Ministry of International Trade and Industry announced that sales of large Japanese retailers were down 3.6 per cent to 1.77 trillion yen (about HK$125.67 billion) in October. Investment sentiment sank even lower when many banks reported sharply lower profits. The banking sector, which accounts for 25 per cent of Topix and 40 per cent of the Nikkei 300, fell 4.92 per cent. Japan's leading 11 commercial banks announced their April to September interim results on Thursday, showing a combined decline in pre-tax profits of 22 per cent. The spate of weak interim results has prompted Nomura International Research to lower the earnings forecast for its Nomura 400 index by five per cent for fiscal 1995 as it becomes more apparent an economic recovery is a long-range proposition. Mr Susumu said investors were hoping Prime Minister Morihiro Hosokawa's government would help stem the downward momentum by coming out with a positive message after meeting last weekend with US President Bill Clinton in Seattle. Instead, the government has remained silent and further clouded the economic outlook by declining to state whether it would reduce income tax by more than five trillion yen to stimulate the economy. Yesterday, Finance Minister Hirohisa Fujii reiterated that there would be no government support for the stock market, saying ''administrative authorities should not be commenting on stock-price levels''. ''Whereas before the government used to draw a line in the sand, that's not the case any more,'' said Robert Owen of Schroder Securities in Tokyo. ''We're no longer in a real market, what we're in is a vacuum.'' Mr Owen said that on a strictly technical yield gap analysis: ''The real fundamental value to this market is between 12,500 and 13,800.'' Another important factor contributing to the decline has been futures index-linked arbitrage as investors bought the futures and sold the cash market, providing yet another stimulus for the index to decline. Nomura International institutional salesman Katsumasa Matsumura said this problem had been exacerbated by the fact there had been little rollover of futures positions into the March contract. Mr Matsumura said that if the Government did not provide the market with a boost next week, the Nikkei 225 could shed another 700 points next week to crash through the 16,000 barrier. Market watchers said the only salvation could be a technical rebound because the Nikkei 225 was now trading more than 10 per cent below the 25-day moving average, which could cause bargain-hunters to become active. ''It sounds very negative but right now pessimism is overwhelmingly mounting,'' said Yamaichi's Mr Susumu. ''I don't want to be a contrarian, but there are good opportunities for investors without a position to take a position.'' With a generally dismal outlook for Japanese equities, local investors are now starting to turn their sights to other markets in Asia - an option many retailer investors have never considered due to the market's strength in the past and concerns about currency risks.