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The Tokyo stock market appears poised to test its upside, counting on Prime Minister Junichiro Koizumi’s economic policies.

Having hit a postbubble closing low of 11,579.27 on July 30, the 225-issue Nikkei average staged a strong rebound and is expected to test its 13-week moving average of 12,885. With a slew of poor earnings results from high-technology firms out of the way, bulls have returned to the market.

The government has already shown an outline for administrative and fiscal reforms before Friday’s adoption of a ceiling on budgetary requests by government ministries and agencies for fiscal 2002. It also said it will prioritize budget appropriations for seven key areas, including urban redevelopment, and science and technology.

The government has also asked banks to reassess their bad loans more strictly and review their restructuring plans before the Sept. 30 end of the fiscal first half.

Reform of the securities-related taxation system will be a key factor affecting stock trading from now on. With 6 trillion yen worth of shares expected to be sold to liquidate cross-shareholding ties this fiscal year, measures to establish a share-purchasing organ will also have a great impact on the market.

When the current rally runs its course, the Tokyo market will likely cement its bottom while examining advances in Koizumi’s reform programs and corporate restructuring.

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