Tokyo stocks are expected to show wild fluctuations for now, reflecting jitters in the U.S. stock market and currency trading.

To help the Tokyo stock market bottom out and turn upward, downside risks in the U.S. market need to be wiped out. U.S. companies’ results in the April-June quarter, which will be released beginning mid-July, will provide such an opportunity by confirming the improvement of earnings.

While U.S. macroeconomic data are testifying to a pickup in economic activity and corporate earnings, U.S. stocks are showing downward trends due largely to balance-sheet adjustments at U.S. firms.

In addition, investor sentiment has been dampened by renewed concerns about terrorism, increased tensions in the Middle East and accounting chicanery in Corporate America.

Nevertheless, personal consumption remains firm on the back of low interest rates and a bottoming-out of the labor market. Among other favorable factors are a recovery in capital spending in sectors other than communications, an inventories decrease to a 10-year low and a rise in productivity.

The U.S. economy therefore is unlikely to fall out of the bottom, while balance sheet adjustments have advanced and so will end before long.

In Japan, industrial production is maintaining a moderate pace of recovery led by exports. Trade data for May confirmed a bottoming out of exports to Asia and Europe.

Although a sense of recovery has yet to be felt about domestic demand, overtime work is starting to pick up in the manufacturing sector as is consumer sentiment in Tokyo.

Japanese companies’ earnings will continue to improve in light of a recovery in industrial production as well as improved productivity resulting from stepped up restructuring.

The downside of the Tokyo market will be limited as companies will begin to buy back their own shares following the current round of shareholders’ meetings. At the same time, the upside will be heavy due to remaining jitters in the U.S. market.

Under the circumstances, the barometer Nikkei stock average of 225 major issues is expected to move in a range between 10,000 and 11,000 for the present.

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