TOKYO -- Business confidence is deteriorating, analysts are cutting their forecasts for corporate profits, the economy is still backpedaling and the political world is beset by a serious scandal, yet the Japanese stock market broke from its doldrums yesterday to stage one of its biggest rallies in the last several years.
The 225-stock Nikkei index shot up from the opening and rode the crest of a heavy wave of buying to close at 17,686.47, up 868.77 points, a 5.17 percent gain.
Volume totaled 550 million shares. Three years ago that would have been an average day, but in the currently depressed state of the market that is about twice the level of recent sessions.
(The Nikkei pierced the 18,000-point level about 30 minutes after the opening bell Tuesday before receding to 17,889.44 points by mid-morning, up 202.97 points, or 1.14 percent, the Associated Press reported.)
Leading the charge was a stock that has been among the most disappointing over the last several years, Nippon Telegraph and Telephone, the government-controlled telecommunications giant. Stock in NTT soared 75,000 yen ($638) yesterday, to 780,000 yen ($6,637) a share. That represented a 10.6 percent rise for the day and a gravity-defying 26.6 percent increase since the beginning of last week.
Analysts were hard pressed to find a clear explanation for the rally, other than heavy buying by government-controlled trust funds that finally pulled other investors into the market. For the last several months, the Finance Ministry has carried on a thinly disguised campaign to use public money to prop up the ailing market, now well into its third straight year of decline.
These government-led efforts have been dubbed the PKO, for price-keeping operation; the expression is a play on the U.N. peacekeeping operation in Cambodia, in which the Japanese government agreed to participate last year, after months of debate, by sending troops.
"The government has been orchestrating this thing all along," said Kevin Horgan, an executive in Tokyo in the equity sales department of Lehman Bros.
It is widely believed that the government's aim is to keep shares propped up at least until March 31, when the fiscal year ends, and thus spare banks and companies from having to report even greater losses on their stock portfolios.
"We're still wondering what the incentive for this buying would be," Yuichi Matsushita, a market strategist at Nikko Securities, said. "There's been no fundamental change in the economy yet, but we think some psychological factors have improved."