Two business lobbies on Friday asked a Liberal Democratic Party panel to remove a legal curb on companies buying back and holding in reserve their own shares.

The Federation of Economic Organizations (Keidanren) and the Japan Association of Corporate Executives (Keizai Doyukai) also asked the panel, which is considering ways to bolster equity markets, to consider tax measures including tax breaks to encourage individual investors and a new corporate pension program.

"Making stocks easy to manage in view of corporate restructuring, and expanding private pension plans will be a key not only to stock prices but also to a sustainable economic recovery in Japan," Keidanren officials said.

Allowing companies to hold in reserve shares that they have reacquired has been proposed by some LDP members to help companies absorb the unloading of cross-held stocks.

They are currently allowed to buy back shares only for such purposes as taking them out of commission.

The recent sharp downturn in stock prices has been attributed to sales of cross-held shares by companies and financial institutions.

The business groups also recommended allowing employee stock ownership plans as an alternative to corporate pension schemes. Prevalent in the United States, stock options are part of pension funds and mostly consist of the company's own stock.

The business groups also suggested that investors be spared paying income taxes on dividends from their shareholdings as the dividends are paid out of companies' after-tax profits, and that companies be allowed to put off reporting losses from stock sales.

The LDP panel was launched Thursday and is scheduled to hammer out a package of measures by the end of this month.

Insurance support

The leader of Japan's life insurance industry voiced support Friday for easing restrictions on company share buybacks as a way to prop up weak stock prices.

Ikuo Uno, chairman of the Life Insurance Association of Japan, said the system of allowing companies to buy and hold their own shares, or the treasury stock system, should be created "as a step toward buybacks for retirement."

The Liberal Democratic Party is considering lifting current restrictions on companies buying back their own shares and holding them as treasury stock.

Such repurchases are currently permitted for specific purposes including stock option schemes.

The weakness of stocks is having a "grave" effect on life insurance companies, Uno said, adding that "insurers must establish operations that do not rely on latent profits" on stockholdings.

Unlike other industrial countries, where companies are allowed to buy and hold their own shares as treasury stock, Japanese firms are allowed to do so only under certain conditions -- usually to feed stock option schemes or to cancel shares.