The catalyst for this month’s fall in Tokyo share prices was selloffs by foreign investors, notably U.S.-based players.

Although the structural reform program advocated by Prime Minister Junichiro Koizumi has garnered high public approval, it remains anybody’s guess whether a strong pickup in foreign buying is on the way.

The Tokyo stock market, as measured by the 225-issue Nikkei average, appears likely to move between 12,500 and 14,500 in the near term, with speculation over foreign investors’ purchases continuing to play a role in daily activity.

Foreign investors remained net buyers of Japanese stocks for the 10th consecutive week in the week to May 25, bringing their net purchases for the year to 3.3 trillion yen.

But they turned net sellers the following week and sold roughly 600 billion yen more than they bought in the next three weeks to June 15.

Have foreign investors turned skeptical about the “Koizumi effect?” I don’t think so.

The Koizumi administration was inaugurated in late April and began taking charge of national affairs early last month.

Foreign investors’ activity in recent weeks can hardly be taken to bear out their judgment on Koizumi’s political future.

Although the ruling Liberal Democratic Party triumphed in the Tokyo Metropolitan Assembly election Sunday, there is little dispute that many of the nation’s politicians and bureaucrats remain skeptical about the sweeping restructuring program pledged by the Koizumi administration.

Undeniably, though, the LDP’s strong showing in the election has brightened prospects for Koizumi’s agenda.

Koizumi is set to travel abroad this weekend and in July to meet foreign leaders.

Given the record high public approval rating he has received at home, U.S. President George W. Bush will most likely give Koizumi the treatment he deserves when they meet at the Camp David retreat in Maryland late this week.

It remains to be seen, however, whether hospitable foreign media coverage of Koizumi’s trips will help improve foreign investors’ confidence in Japanese stocks.

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