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Although Tokyo stocks still remain on a roller-coaster ride, a bull market appears to be on the way.

The Tokyo market could have bottomed out when the 225-issue Nikkei average fell below 12,000 in mid-March to hit a 16-year low of 11,819.70.

The view is attributed to two factors.

First, the Bank of Japan decided on a quantitative monetary easing last month, an unexpectedly bold policy shift in view of the central bank’s past stance.

The BOJ opted to bring overnight interest rates effectively back to zero by setting a higher target for commercial banks’ reserves in its current accounts. This policy is unprecedented in Japan.

In retrospect, the stock market always reacts strongly when an unprecedented policy is introduced.

When, for example, the government decided to issue long-term government bonds in August 1965, the Nikkei average, which hit a low of 1,020 in the month, rose 55 percent in the following eight months to April 1966.

Reacting to the BOJ’s adoption of the “zero-interest-rate” policy in March 1999, the stock barometer jumped 61 percent to hit a high last April from its low in October 1998.

As the second factor, the Nikkei rebounds sharply after hitting bottom.

The closely watched index has experienced three large bottoming-outs since the start of the 1990s. It soared 1,907 points in three days in 1992, 1,700 in four days in 1995 and 1,416 in nine days in 1998.

In other words, the average gained some 1,500 to 2,000 points in several days soon after hitting bottom.

The same thing happened this time, with the Nikkei jumping 2,043 points in eight days after mid-March.

Tokyo stocks are considered to have bottomed out also because overseas stock markets are very likely to bounce back on monetary easing. In short, stocks are expected to rise simultaneously worldwide.

Like overseas markets, the Tokyo market is paced by high liquidity. But it should be noted that while overseas markets are staging a rally, the Tokyo market is entering a new phase of full-scale rises as it has experienced price corrections for over 10 years.

Needless to say, the Tokyo market will rise more strongly than overseas markets.

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