A few months ago, members of Japan's ruling coalition of the Liberal Democratic Party, New Komeito and the New Conservative Party encouraged the government to take steps to prop up the stock market. They also urged the government to accelerate spending from the public-works reserve fund of 500 billion yen that is earmarked in the fiscal 2000 budget. And they further recommended that appropriate measures be taken to prevent the yen from fluctuating rapidly. Happily, most of this advice was disregarded.
As evidence that truly bad arguments never disappear, LDP officials are again urging various forms of intervention to prop up the sluggish stock market. Even if the government decided it was the right thing to do to shore up stocks, it remains uncertain whether such action would ultimately prove an exercise in futility. It is more likely that such interventions would only make matters worse.
One of the downsides of the proposed intervention would be the slowing down of elimination of cross-shareholdings by banks and firms. This could be accomplished through the creation of tax disincentives regarding such share sales, including the withholding tax on capital gains on stock trading. However, such a move would undermine the commitment to move toward a banking system that is both transparent and market-oriented.