Feeling the jolts of unstable stock markets worldwide, the Tokyo bourse has been hit by sharp corrections since the start of April.
Although concern about inflation and higher interest rates in the U.S. has surely ushered the Tokyo market into its current correction, there are also causes inherent to Japan.
Since April 1, trading in Tokyo has been based on three expectations — favorable supply and demand, a gradual pickup in economic activity and strong corporate earnings. Recently, however, the first two expectations have become questionable.
The supply-and-demand situation has not improved as expected because foreign investors remain net sellers. Also, money expected to flow into the market from the massive amount of maturing postal savings has largely stayed away from stocks.
Questions about Japan’s economic recovery have been increasing since last month, and stocks can be expected to remain unstable ahead of the June Lower House election.
In the medium term, however, investor pessimism is uncalled for due to the improvement of corporate earnings and advances in corporate restructuring.
The uptrend in U.S. interest rates is expected to end after this summer, sending U.S. stocks up again. Tokyo stocks will be favorably affected and resume their ascent. A good investment eye is needed under these circumstances.