With stocks locked in a crosscurrent between optimism and fears over events in store for the rest of the year, activity on the Tokyo stock market has been subdued.

The market is searching for a direction, keeping shares on a roller-coaster ride.

Further volatility appears to be inevitable for the rest of the year amid concern over corporate earnings and economic prospects and the government's fiscal condition.

It is encouraging to note, however, that the downside risk of the Tokyo market has subsided as corporate earnings reports for the first half of the current fiscal year settled well within expectations.

Banks' interim results, which went as far as to tap surplus funds for the disposal of bad loans, also eased concern about the risk.

While there are many unfavorable economic signs, such as credit-rating agency downgrades of Japan's sovereign debt rating and an increase in corporate bankruptcies, macroeconomic data indicating an imminent halt to the economic deterioration, like industrial production in October, can be seen.

Under the circumstances, the Nikkei average is expected to move between 10,000 yen and 12,000 yen until year's end.

The downside risk is also limited because downward revisions of earnings projections by U.S. high-technology firms are coming to a halt.

Uncertainty, if any, will emerge early next year when the adverse effects of deflation on Asian materials companies may become apparent, following those of the so-called information technology recession and the Sept. 11 terrorist attacks on New York and Washington.

At least, restructuring by foreign companies in Asia, including Japanese firms, may spread in the high-tech field.

In the medium term, investors should pay attention to the possibility of gradual changes in the flow of foreign capital into Asia following China's entry into the World Trade Organization.

The U.S. economy is highly likely to show recovery trends in the second or third quarter of 2002 for cyclical reasons.

A focal point for the Tokyo stock market is whether Japan can keep the banner of structural reform high until then, while paving the way for resolving the bad-loan mess to some extent.