The Tokyo stock market’s downside risk has visibly subsided, thanks to the stabilization of U.S. stocks.
The Tokyo market has taken comfort from back-to-back upswings in New York stocks in recent days and the start of Diet debate on the structural reform advocated by Prime Minister Junichiro Koizumi.
For Tokyo stocks to rise further, nevertheless, there must be more incentives to entice major domestic players to return to the market.
Strong earnings in the second half of this fiscal year need to be ensured if the Nikkei average is to climb above 15,000, a level unseen since mid-December.
In other words, further volatility appears to be in store for the coming months.
The index is expected to move between 13,000 and 15,000 for the next few months because domestic firms are unable to confirm a recovery in orders in the fiscal second half until then at the earliest.
Domestic manufacturing has evidently slowed since the start of this year.
With production adjustments continuing, domestic economic activity will be adversely affected in the coming two to three quarters.
Compared with past adjustment cycles, however, the current one is expected to be moderate in light of a lower inventory level. If new demand, such as for next-generation cellphones and digital home appliances, stimulates economic activity, the current cycle of adjustments will probably be shortened.
In a time of both misinformation and too much information, quality journalism is more crucial than ever.
By subscribing, you can help us get the story right.