In a bid to end a tailspin in Tokyo stock prices, the government on Thursday unveiled six emergency steps, including stricter control of speculative sales.
Experts said, however, the package will have only short-term effects, and that stocks will head south again if deep-rooted problems — such as banks’ bad-loan woes and deflation — are not confronted.
“These steps will virtually have no effect on the market,” said Kenji Yumoto, senior chief economist at private think tank Japan Research Institute. “The government has to solve the country’s more fundamental problems.”
The biggest reasons for the stock market’s recent tumble are Prime Minister Junichiro Koizumi’s failure to aggressively solve economic problems and fears that an attack on Iraq would further hurt the economy, Yumoto said.
In the package announced by the Financial Services Agency, the Tokyo Stock Exchange and the Securities and Exchange Surveillance Commission will be asked to carry out stricter monitoring of share price movements to prevent illegal speculative trading.
The FSA will also ask brokerage houses to think carefully when they sell stocks on their own accounts in times of market turmoil.
In addition, it will ask the TSE and security industry organizations to regulate a trading practice that facilitates stock-price manipulation.
Institutional investors will be asked to devise their own rules to govern loaning the shares they hold to short sellers.
The FSA meanwhile will remove, for three months, a limit on the amount of their own shares companies can buy back, as well as suspend the restrictions on the timing of these orders.
The limits were originally imposed to combat insider trading. The suspension is intended to encourage firms to aggressively purchase their own shares.
Stock prices continued to ratchet downward despite reports of the emergency steps. The benchmark 225-issue Nikkei average fell 74.48 points Thursday to close at 7,868.56.
The decline threatens domestic companies, insurers and banks, all of which own huge numbers of shares in one another. The plunges are also happening just ahead of the March 31 book closings.
“The package is part of the government’s efforts to act in a flexible and impromptu manner to avert a financial crisis,” Koizumi said before the announcement.
Meanwhile, senior lawmakers of the ruling Liberal Democratic Party and other coalition parties agreed Thursday to urge the government to delay imposing a limit on Japanese banks’ shareholdings to help alleviate selling pressure.
Banks will be required to limit the value of their shareholdings to less than their primary capital beginning in September 2004.
The lawmakers also agreed to demand that the Bank of Japan purchase more stocks held by banks. The BOJ said in September it would buy 2 trillion yen in banks’ cross-held shares; it has so far purchased around 900 billion yen worth.
They also agreed on the need to expand the functions of Banks Shareholding Acquisition Corp. — a semiofficial entity that absorbs dumped shares.
On another front, the government on Thursday dispatched Haruhiko Kuroda, a special financial affairs adviser to the Cabinet, to Washington to meet with Fed Chairman Alan Greenspan and other U.S. financial officials.
They are expected to discuss possible joint intervention in the currency market in the event of an attack on Iraq, government sources said.
Joint dollar-buying intervention would help avert sharp falls in the dollar. A strong yen hurts Japan’s exporters.
“Kuroda will discuss necessary coordination,” Chief Cabinet Secretary Yasuo Fukuda said, without elaborating.
Information from Kyodo added
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