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The Tokyo stock market has crawled out of a corrective phase, with the key market indexes recouping much of their recent losses.

In retrospect, the volatile trading drove down the Tokyo Stock Exchange’s Topix index of all first-section issues to 5,500 last week. This level is close to the break-even point of shares held by major financial institutions, indicating the downturn was about to run its course.

The weakness of Tokyo stocks in recent weeks was attributable largely to the reshuffling of the 225-issue Nikkei average. In terms of market capitalization, the replacement of 30 of the Nikkei components is widely seen as having had the same effect as replacing half of the 225 issues.

Other key downside factors included the chaotic political situation at home and the plunging U.S. Nasdaq market.

The Japanese market is beginning to look to favorable economic prospects. The Organization for Economic Cooperation and Development recently said Japan’s gross domestic product will probably expand 1.7 percent in real terms in 2000 and 2.2 percent in 2001.

Corporate earnings are estimated to have shown their first profit gain in three years on a consolidated basis in fiscal 1999, despite a drop in sales.

Profits and sales are both forecast to grow in fiscal 2000, with information technology-related companies leading the way.

If an economic recovery is in fact taking place, the recent weakness of stocks might have stemmed from an unfavorable supply and demand situation.

When the Tokyo market recovered from the 1965 recession that badly hit the securities industry, the Nikkei average jumped 55 percent from its low.

Subsequently, however, the market experienced corrective phases due to the dumping of shares bought by Japan Joint Securities Co., set up during the recession to prop up stock prices.

While the Nikkei average rose more than 60 percent from its low in October 1998 to its recent high in April, an estimated 2 trillion yen to 3 trillion yen worth of shares were sold during fiscal 1999 as a result of collapsing cross-shareholding ties between businesses.