Tokyo share purchases are expected to increase on the back of an improved supply and demand balance and rapidly growing expectations of a recovery in Japan’s economic fundamentals.

The prospect is supported by technical trends, although there remain structural risks, including the bad-loan mess.

Stock prices will be propped up by three key factors this time — increased expectations of U.S. economic recovery, the bottoming-out of economic activity and corporate earnings in Japan, and an improved supply-demand situation and a turnaround in medium-term trends.

In the U.S., inventory adjustments have been completed and economic activity has entered a recovery in terms of the inventory cycle. Reflecting this, the federal funds rate has begun to take into account two to three hikes by a total of 0.75 percentage point expected this summer.

Capital spending will be a focal point from now on. Although it remains sluggish, the rate of capacity utilization is starting to bottom out from its historic low.

The Japanese economy is pulling out of its worst period, with the government revising its assessment upward in the latest monthly report. Corporate earnings are also bottoming out, although the downward revision of earnings projections continues.

A pickup in exports to Asian markets will boost corporate earnings to a large extent.

With regard to supply and demand, foreign investors, who have lagged behind other investors in the current round of stock trading, are starting to show noticeable moves. The supply and demand situation as well will be favorably affected because public pension funds will be allowed to manage more assets by themselves than before, starting in fiscal 2002.

Technically, the 225-issue Nikkei average has been showing a turnaround in medium-term trends since March 1999, rising above the 200-day moving average.

While the market saw three rises in the 1990s, the Nikkei climbed 31.83 percent in the following 11 months and 55.34 percent in the 15 months after its low. This translates into 15,901 if calculated from 11,450 set on March 1 and 14,634 from 9,420 on Feb. 6.

Thus in the medium term, the Nikkei is looking at 14,500 to 15,000.

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