The benchmark Nikkei average, which gained 26 percent in a little more than a month in early March, slid back in lackluster trading last week.
Market participants were disheartened by Prime Minister Junichiro Koizumi’s reported remarks in Seoul that he sees no need for more antideflation steps.
The correction can be taken to indicate a shift in market sentiment for the worse.
Given the stronger-than-expected U.S. economic recovery and its impact on the Tokyo market, however, prospects may not be as bad as they look.
There is little dispute that a pickup in Japanese export shipments and improved activity in domestic industries have helped the economy pull out of serious weakness.
Heightened public consciousness of political issues as well as restructuring well under way at industries at home could bode well for the economy, and the growing forces of supply and demand could presage a more stable stock market in the near term.
U.S. interest rates are now widely expected to turn higher shortly, enticing foreign investors to build their Japanese positions.
Now that economic fundamentals and the supply-demand balance have taken a turn for the better, the market is looking to the government for positive policy measures. When the government’s positive intention is confirmed, the market could rebound strongly.
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