Tokyo stocks, as measured by the Nikkei average of 225 major issues, are hovering around 10,000.

Although the Tokyo market was temporarily regarded as a "place of refuge" for funds fleeing from U.S. stocks, global stock trading is being paced by falls in the U.S. resulting from accounting scandals at major corporations.

Legislation to crack down on corporate fraud is expected to be signed into law by U.S. President George W. Bush this week. Corporate chiefs are also required to submit written oaths to the government by Aug. 14, declaring their firms have compiled proper financial reports.

Encouraged by these determined steps to prevent a recurrence of corporate fraud, U.S. stocks are starting to show signs of stabilizing.

For Tokyo stocks, a focal point is how to evaluate the two effects of plunges in U.S. stocks -- the yen's rise and uncertainty over the U.S. economic outlook.

With firms starting to release April-June earnings results, some sectors, especially electronics, are elating the stock market by showing improved results.

Nevertheless, there are lingering concerns about a possible downturn in corporate earnings in the second half of the current fiscal year, because exporters are reviewing export plans as well as their assumed yen exchange rates in anticipation of the currency's appreciation.

Macroeconomic data testifying to a pickup in domestic economic activity are emerging. Data on customs-cleared trade, for example, showed a rise of around 20 percent in net exports in the April-June period over the preceding quarter.

It should be noted, however, that Japan's current economic recovery is fragile because of its reliance on exports.

As another matter of concern, turmoil in Japan's financial system may re-emerge if the Nikkei average falls far below 10,000, expanding valuation losses on shares held by financial institutions.

As long as pessimism over U.S. stocks remains, unfavorable factors will plague the domestic stock market.

Once U.S. stocks turn upward and create a sense of security, however, investors will rapidly abandon their overly pessimistic views and start paying attention to how stocks are affected by the business cycle and manufacturing trends.