Most foreign critics and many Japanese believe that the way for Japan to embark on economic recovery is for the central bank to stoke up controlled inflation. So when Junichiro Koizumi, the prime minister, said he would chose a new governor who would more actively end deflation it raised market hopes. But there is still a widespread fear that, as with so many other promises of reform, Mr Koizumi will backtrack on this statement.
Another important indicator to watch is how the market behaves in the run-up to the end of the end of the fiscal year on March 31st. The government and leading financial institutions have often actively supported the market as companies approach their year end.
Overall the Japanese market, like the other main global markets, is suffering at present. The Nikkei closed at 8,549 yesterday or slightly above its recent lows of November 2002.
Investors who are considering investing in the Japanese market should also take into account the impact of currency fluctuations. Although the yen has remained relatively stable against sterling it is possible that big currency shifts are imminent. It has recently emerged that the Bank of Japan has secretly intervened in the currency markets to prop up the dollar against the yen.
