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Uncertainties about the prospects of a U.S. economic recovery are putting major stock markets worldwide in a slump.

The Dow Jones industrial average is hovering close to its post-Sept. 11 low. The Nikkei average on the Tokyo Stock Exchange is also fluctuating barely above this year’s low, recorded in February.

While Tokyo share prices have been pushed down by the fall in the New York market and the dollar, widespread disappointment with the government’s antideflation measures is another major factor. The latest slump is the market’s way of warning Prime Minister Junichiro Koizumi.

Regarding Japanese stock prospects in the latter half of the year, I see some improvement in the supply-and-demand situation. These include the raising of the upper limit of firms’ share-buyback plans to around 8 trillion yen, moves by foreign investors to up their Japanese stock holdings and increased demand from public pension funds.

Trust banks have been net sellers in the market since April, but they are expected to become net buyers in the near future.

Current Tokyo share prices — in terms of price-earnings ratio — are the lowest since 1990. Japanese firms are expected to post higher profits, given that their restructuring and loss-disposal costs will fall from the previous year.

An improved supply-demand situation will mean Tokyo share prices will be less directly linked to the Dow. As investors anticipate recovery in Japan’s corporate earnings, the Nikkei may rise and test 13,000 toward year’s end.

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