The Tokyo stock market staged a strong rebound earlier last week, reacting positively to the Bank of Japan’s decision to further ease its grip on credit.

At its policy-setting board meeting Tuesday, the BOJ decided to raise the target for commercial banks’ reserves in its current accounts from 5 trillion yen to 6 trillion yen. The move is aimed at providing interbank lending markets with practically interest-free money, thereby discouraging the economy from sliding into a deflationary spiral.

But stocks have subsequently resumed their weak trends.

It is apparent the additional credit relaxation will not stimulate economic activity unless banks increase their loans to corporate borrowers.

As banks are too preoccupied with their bad-loan disposals to boost lending, the central bank’s latest decision has only had a psychological effect on the economy.

A further easing of credit, in line with the demands of Finance Minister Masajuro Shiokawa and Heizo Takenaka, state minister in charge of economic and fiscal affairs, would be meaningless.

Intervention in the currency market to halt the yen’s rise against the dollar would be a much better step to support the domestic economy.

With the Liberal Democratic Party having won the Upper House election last month, intraparty opposition to the structural reform initiatives of Prime Minister Junichiro Koizumi is starting to gather steam.

The Koizumi administration will have to brace itself for formidable resistance to its reforms as it maps out the concrete steps necessary to initiate them.

There is concern that Koizumi may buckle under pressure from antireform forces just as he abandoned his pledge to pay homage at Yasukuni Shrine on Aug. 15 — the anniversary of the nation’s surrender in World War II — in the face of strong opposition from abroad.

At best, the Tokyo market hopes that the Koizumi administration will push ahead with its reform pledges while preventing a further deterioration of economic activity.

Investors should start buying shares when this scenario begins to materialize or the 225-issue Nikkei average falls below 10,000.

Until then, they should stay on the sidelines to avoid risks.

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