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Tokyo stocks are expected to firm in May and June, counting on favorable economic and corporate earnings prospects.

The combined pretax profits of nonfinancial firms will jump more than 55 percent in fiscal 2002 in a turnaround from a fall of over 40 percent a year earlier, private forecasting agencies say.

The projected rebounds appear highly attainable because profit-boosting effects of restructuring implemented in fiscal 2001 will emerge in such forms as an improvement in the balance of nonoperating revenues and expenditures and cuts in labor and depreciation expenses. In addition, the rate of capacity utilization is showing an uptrend due to low inventories.

The U.S. Federal Reserve is less likely to raise interest rates in the near future in light of improved corporate earnings in the first quarter of 2002 and eased inflationary pressures. U.S. stocks are thus expected to show strength and provide support for rising Japanese stocks.

Stock trading in the middle of this year and beyond will be greatly affected by key issues such as whether Japan can achieve a smooth shift to an economic recovery based on domestic demand from an export-led recovery and whether banks can regain public trust in their balance sheets by promoting the disposal of bad loans.

But investors should not become too pessimistic about these uncertainties.

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