Yesterday, the Nikkei 225 stock average closed at 17,555, up 1,013 points, in heavy trading ahead of today's planned announcement of a supplementary budget by the government to stimulate the flagging economy.
In only seven days' trading the Nikkei has risen 3,246 points from its low of 14,309, which prompted Tsutomu Hata, the Finance Minister, to announce emergency measures to help the creaking financial system that was pulling the market down.
Jesper Koll, chief economist at S G Warburg, said: 'The stock market is impressed by the fact that the government is finally prepared to do something. Psychologically this has been very important.'
Yesterday's rally was marked by a substantial increase in turnover - some 620 million shares changed hands, compared to an average daily turnover of 200-300 million in the last couple of months. The last time turnover was so high on the Tokyo market was in September 1991.
The main reason for yesterday's surge was the prospect of today's supplementary budget announcement, details of which have been widely leaked. The government is expected to announce a fiscal package of Y9,000bn (pounds 37.5bn), a third of which will be designated for supporting the financial system.
The total amount in the package - as leaked - will be Y2,000bn more than had been expected until last week's shock reaction by the Ministry of Finance to the steep fall in the market.
However, some analysts have warned that the rally could be temporary, as investors who have been badly hurt by the market's fall in recent months may be tempted to take profits from the recent upsurge - particularly since Japanese corporations continue to announce gloomy profit forecasts.Reuse content