Although the stock market has reacted positively to the inauguration of the reformist Cabinet of Prime Minister Junichiro Koizumi, doubts linger.

In order for the Tokyo stock market to stage a strong and lasting rebound, investors must be convinced of Koizumi’s political clout.

Uncertainty about his political future could keep the 225-issue Nikkei average locked within the 13,000-15,000 range.

Given the New York Stock Exchange’s demoralizing performance in recent weeks, the Tokyo market appears likely to remain mired at a depressed level for some time.

Much of the recent uptrend in New York stock prices has run out of steam as favorable earnings reports have been factored into share prices.

The question now is whether the U.S. economy will return to sustainable growth, with positive macroeconomic developments pushing small companies forward again.

Recently, however, investors have been unnerved by reports that many firms in the U.S. information communications sector are busy working off stockpiles of unsold products to stay in business. There is talk that U.S. telecommunications firms are also stepping up efforts to liquidate their bloated liabilities.

Despite their efforts to stay in business, some firms have already gone under, cutting into the U.S. gross domestic product and clouding macroeconomic prospects.

Although the Koizumi administration still maintains a high public approval rating, the market remains unconvinced about legislative moves to enact the emergency economic measures he has pledged.

Still, given the strong backing by members of the ruling Liberal Democratic Party’s regional chapters as well as the general voting public, the outlook appears bright for Koizumi’s proposed policy measures. While major domestic players are busy unwinding their portfolios, foreign investors have long remained a major driving force on the Tokyo market, counting on economic restructuring programs advocated by Koizumi.

Nonresidents have begun slashing their purchases of late, however, reflecting concern about the possibility of severe fiscal discipline in Koizumi’s policy mix.

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.