The Tokyo Stock Price Index of all issues listed on the first section of the Tokyo Stock Exchange finally closed above 1,341.82 points on April 26, bringing the closely watched chart to a point where investors are recommended to start buying shares.
The performance of the Topix drew attention because it failed to finish above that level on March 23 as well as April 19, 20, 23 and 25 after topping it during intraday trading.
The chart is designed to show a turning point in stock price trends with a bundle of 10 lines each drawn whenever the market sets a new price. The chart based on the 225- issue Nikkei average made a turn for stock purchases on March 23.
Changes for the better in the chart based on both the Topix and Nikkei mean the market’s downside risk has subsided substantially. As well, the changes indicate the start of medium-term upward trends.
The Topix-based chart is more accurate in predicting uptrends than that of the Nikkei. After 1992, the Nikkei chart reached a share-buying point on seven occasions other than the latest one, and failed to lead to medium-term rises on four of them.
In contrast, the Topix chart failed to do so only on two of the six occasions when it reached a purchase point.
Besides, the Topix-based chart turned to a purchase point and signaled the market’s decline to its very bottom in August 1992, July 1995 and November 1998, while the Nikkei-based chart did so only in August 1992.
Another thing that happened on April 26 was the formation of new Prime Minister Junichiro Koizumi’s first Cabinet. His picks brought a sense of freshness to Japanese politics by breaking the longtime practice of awarding Cabinet slots according to the strength of various factions in the Liberal Democratic Party. He also appointed many nonpoliticians, women and junior lawmakers while retaining those in charge of key issues.
Although there are short-term uncertainties about the new Cabinet in light of the nation’s economic difficulties, the recent changes in the chart indicate market attention is shifting away from that situation and toward mid- and long-term expectations of structural reform. Under such circumstances, bold policy measures, including reform of securities-related taxes, should be carried out.
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