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The recent rebound on Wall Street could presage a more stable market in the near term.

After having struggled to find its way for weeks, the Tokyo stock market has also snapped out of its doldrums, brightening prospects for the months ahead.

There appears to be a good chance that foreign institutional investors will increase the weighting of Japanese stocks in their global portfolios next month.

The 225-issue Nikkei average now appears likely to test ground close to 13,000 next month, riding high on the crest of a strong pickup in the flow of global investment funds into the Tokyo market.

Government data due to be released on June 7 are expected to show that the Japanese economy, as measured by gross domestic product, grew at an annualized rate of more than 8 percent in the January-March period.

Portfolio managers have maintained a cautious stance on Japanese stocks. They will find it unavoidable, however, to increase them to some extent in their portfolios if Japan’s economic growth is found to have outpaced that of the U.S. even temporarily.

The Japanese economy is widely expected to contract in fiscal 2002. But if expectations of an expansion multiply, foreign investors, who are now skeptical about the government’s recent declaration that the economy is bottoming out, will have to change their view on Japan.

With firms accelerating their release of business results for fiscal 2001 to March 31, the fear of downward revisions of earnings forecasts appears to have subsided. With a steep rebound in corporate earnings forecast especially in the high-technology sector, market attention will focus on cash flows that are expected to improve rapidly.

Increased cash flows were used to finance capital spending, diversification and other investments as well as mergers and acquisitions in the past. This time, however, firms are likely to spend them to buy back their own shares.

Share buybacks will exceed 2 trillion yen and may eventually reach 4 trillion yen, according to plans announced by firms.

Although sales to end cross-shareholding ties will continue to weigh down the stock market, buybacks are likely to prop it up when it weakens.

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