The Tokyo stock market appears poised to snap out of a three-month correction. Having reached a high of 20,833 on April 12, the 225- issue Nikkei average fell to 16,008 on May 15 and is now hovering around 17,500.
The Nikkei average appears likely to move between 17,200 and 18,400 in the near term.
Market participants are no longer fretting about an economic downturn. They have taken heart from the latest batch of corporate earnings reports and a growing flow of money into the market. Fears of further volatility in New York share prices are also abating.
The market is pinning high hopes on positive economic policy measures and structural reform programs advocated by the new Cabinet of Prime Minister Yoshiro Mori.
Private forecasting agencies are more sanguine about economic prospects than government offices. Fourteen private think tanks are forecasting a 1.8 percent real increase in the gross domestic product for the current fiscal year on average, against 1.0 percent projected by the government.
Many major firms are indicating they will revise their earnings projections upward for the current business year to March. The growing market forces of supply and demand could meanwhile presage high-priced market activity in the coming months.
Domestic institutional investors, notably investment trust banks, have been net buyers for months, while foreign investors turned net buyers recently for the first time in seven weeks.
Nonresident investors bought 68.07 billion yen more than they sold on the Tokyo, Osaka and Nagoya stock exchanges in the week to June 23, apparently counting on brightening economic and corporate earnings prospects. They are relieved that calm has returned to Wall Street.
The recent slew of U.S. economic reports pointed to benign inflation. Against this backdrop, the U.S. Federal Open Market Committee left short-term interest rates unchanged at its meeting last week, though it left the possibility open of credit-tightening at its next meeting set for Aug. 22.
Attention is also focusing on the Bank of Japan’s policy options amid speculation that the BOJ will soon end its “zero-interest-rate” policy.