Tokyo stock prices appear poised to rebound strongly on bargain hunting.

The 225-issue Nikkei average stayed in a holding pattern through much of last week but is now widely expected to snap out of the doldrums and test the 17,500 level by the end of March.

The price-to-earnings ratio of companies listed on the Tokyo Stock Exchange is estimated at the lower 20s on average, comparable with the level of October 1998 when the Tokyo market hit its bottom after the bursting of the late-1980s asset-inflated economic bubble.

Unfavorable factors affecting the Tokyo market seem very likely to disappear by early next year.

Investor sentiment is being dampened by political confusion in Japan and the United States.

Nevertheless, investors are expecting the reshuffled Cabinet of Prime Minister Yoshiro Mori to come up with policy measures that can win public support.

In the U.S., the election stalemate is nearing an end, while monetary authorities can afford to shift their policy bias away from credit-tightening back to neutrality.

U.S. stocks therefore are unlikely to continue corrections for a long time.

With regard to the supply and demand situation, foreign investors are unlikely to sell down the market further as Japanese shares in their portfolios have decreased substantially.

Even sales to liquidate cross-shareholding ties will not send the downside of the market falling further because sellers are expected to wait for a rebound in the market to sell such holdings.

As another favorable factor, information technology-related capital spending remains brisk and is spreading to many industries, bringing Japan's projected industrial production index for November and December into the plus column.

Corporate earnings in fiscal 2001 are very likely to show a double-digit increase in profits thanks to strong capital spending.

For now, wise investors should selectively buy electronic parts and electric machinery issues while checking whether the Bank of Japan's "tankan" quarterly business sentiment survey, due out Wednesday, will show the continuation of brisk capital spending.