Tokyo stocks have rebounded strongly in recent days, reflecting an increase in optimism among investors.

Heartened by the bullish activity, investors have flocked to the market to seek out buying opportunities.

The catalyst for the rally was tightened controls on short selling. To keep stocks from falling further, the government has tightened restrictions on the sale of borrowed shares.

The package of antideflation measures as a whole met a lukewarm response from the market when it was unveiled on Feb. 27.

Short sellers, including hedge funds, were alerted, however, as they found that the package includes restrictions on short selling. Consequently, the package ignited a flurry of activity to cover short positions.

Major buyers included public pension funds, whose stepped-up purchases in recent weeks have helped shore up stock prices.

It remains to be seen, however, if the uptrend in share prices will gather momentum in the coming weeks.

Basically, however, the market remains fragile, lacking broad buying support. If it was not for increased purchases by public pension funds and speculative demand, Tokyo stock prices might have instead fallen.

It is encouraging to note, nevertheless, that private think tanks are painting a bright picture of corporate earnings for the coming year.

They are forecasting that listed companies as a whole will chalk up a 25 percent year-on-year increase in consolidated pretax profits in the second half of fiscal 2002 after failing to break even in the first half. In their estimates, the price of the average Tokyo stock for the six months to March 2003 will be 45 times earnings, a fairly high price to earnings.

For the Tokyo market to stay firm through much of the coming year, investors must reaffirm their confidence in corporate earnings prospects.

Recent economic data showed a faster-than-expected growth in gross domestic product and a pickup in new industrial orders in the U.S. as well as falling stockpiles of unsold products in Japan.

The fall in inventories has provided a marked lift to market prices for dynamic random-access memory chips, liquid crystal panel displays and other commodities.