TOKYO -- Is it time to think about fishing in the long-troubled waters of the Tokyo Stock Exchange?
For two years, virtually every analyst in Tokyo has had the same answer: "No."
A handful offered a tentative "yes" just over a year ago. But people who took their advice bought into an already-damaged market that promptly lost another 20 percent of the value reflected in its most-watched indicator, the Nikkei index of 225 stocks.
Now, a rally -- the exchange's most sustained rise in half a year -- has added more than 10 percent to the Nikkei. Once again, a handful of analysts are daring to raise their heads. This time, they are bravely saying, "Maybe."
Yesterday, profit-taking by institutional investors and index-linked selling from investment trusts dropped the Nikkei 190.73 points. For the week, however, it still posted an overall gain of 499.95 points, or 2.77 percent, finishing at 18,537.17.
Still, the new level is well under half of the Nikkei's 38,915.87 peak at the end of 1989, just before the nation's "bubble economy" burst. And analysts are anxiously looking for signs that the rally will last.
"April will tell us something," said Craig Nelson, manager of Jardine Fleming's flagship JF Japan Fund and several smaller Jardine funds here.
Analysts are riveted on April because the government has been treating March as a make-or-break time.
One reason: Most corporations close their fiscal-year books at the end of March, and any realized losses on their traditionally hefty stock cross-holdings would cut into already sagging government revenues.
The other reason is that at the end of this month, for the first time, Japanese banks will have to meet capital-adequacy standards set by the Bank for International Settlements. Most analysts say the banks need a Nikkei no lower than 17,000 points to keep the value of their gigantic stock holdings high enough to help pass muster.
With so much at stake, the Ministry of Finance has encouraged, rather than denied, persist ent reports that it is prodding government-regulated pension fund managers to buy key equities any time the Nikkei drops below 17,000.
"If the market can hold its strength after April 1, and if the government is not seen to be pumping it up, the conditions are forming for a significant rally," Mr. Nelson said.
Hirohiko Okumura, chief economist for the Nomura Research Institute, an arm of Nomura Securities, the world's largest brokerage house, believes a rally is not only possible but likely.
Both base their beliefs on the low returns professional money managers now receive from fixed-interest investments after two years of interest-rate cutting by the Bank of Japan.
"Basically, there are now trillions of yen [tens of billions of dollars] in pension and insurance money, and managers are finding it very hard to get an acceptable return without turning to stocks," Mr. Okumura said.
"The tension between fixed-interest investments and equity investments is getting stretched very tight," Mr. Nelson said.
In other words, there is a lot of money looking for places to earn a return, and the stock market is the only remaining place to look.
At the same time, the Ministry of Finance has leaked word to Japanese newspapers that additional trillions of yen in government-regulated funds will be freed to buy into the stock market after April 1.
It was those leaks that touched off the current rally two weeks ago.
But the rally now has run well beyond the 17,000-point level the government was said to be actively supporting. It has been a week since traders last attributed a day's gain to government intervention.
For Jardine Fleming's Mr. Nelson, the long months of government manipulation have made the market's credibility a central issue. If the government is still visibly in the business of rigging stock prices after the end of March, he said, all bets are off.
"The money is there to support a move upward," Mr. Nelson said. "And valuations of some Japanese issues, though still high by other countries' standards, are no longer unrealistic by Tokyo standards. Some managers will have to look upon equities as a better risk than they can get elsewhere."