Japan Considers Stock Buying as Market Slides

Japan's government is looking at stock buying and other methods to support the share market, Finance Minister Kaoru Yosano said on Tuesday, as fears grow about the economic impact of a slide in stocks to two-decade lows.

Yosano said falling shares were damaging the economy by cutting the capital base of Japanese banks, which are big holders of stocks, as well as hurting other investors.

Katsumi Kasahara / AP

The Nikkei 225 Average fell 2.6 percent on Tuesday, nearing levels last seen in 1982, after Wall Street slumped to a 12-year low as investors lost faith that the U.S. government would be able to stabilise the financial system.  Tokyo's broader Topix Index fell 1.8 percent after setting 25-year closing lows for two days in a row.

Officials had been ordered to look into support for the stock market, including setting up a government body to buy shares, Yosano said.

"It is not desirable that share prices are falling, causing unnecessary consequences. I discussed with government staff last Friday what we could do generally to deal with share prices. We must think about this, watching market moves," Yosano told a news conference after a cabinet meeting.

With global share markets suffering, the impact of Japanese share buying might be limited and analysts said they wanted further details before taking too much from Yosano's comments.

"Certainly this is a psychological support, but of course we don't know anything concrete yet," said Yutaka Miura, a senior technical analyst at Shinko Securities.

The Bank of Japan and the government already have programs to buy shares off banks, whose capital has been eroded by the share falls, but not for wider share buying.
     
Exports Seen Almost Halving

Japan's economy shrank 3.3 percent in the last three months of last year, its biggest contraction in about 35 years, as exports slumped on vanishing global demand. 

Economists say industrial production is still sliding and January trade figures due on Wednesday are expected to show exports almost halved from a year earlier.

Big manufacturers such as Toyota and Panasonic are hurting badly as global demand dries up for cars, technology and other manufactured goods.

Yosano said he had instructed government officials to study measures Japan took in the past to support share prices, including setting up a share-buying agency, as it did in 1964 and again a year later.

The two consortiums, in which private brokerages and banks took stakes, bought about 400 billion yen ($4.2 billion) in shares to ease selling pressure. Share prices later turned around.

Some see the program as a success but analysts also note that, with the exception of 1965, Japan's economy in those days was growing at around 10 percent a year.

Japan intervened heavily again in domestic share markets in the 1990s to prop up prices, using savings from public pension funds. But those efforts, often dubbed price keeping operations (PKOs), were deemed failures.
     
Global Slide

The Nikkei share average has fallen almost 20 percent so far this year, after falling a record 42 percent last year.

The head of Japan's main business lobby, Nippon Keidanren, called this week for measures to support share prices alongside a big boost to stimulus spending.

But, with the global credit crunch also sending Wall Street sliding, another cabinet minister warned efforts to boost Japan's stock market faced severe headwinds.

"The sluggishness of the U.S. stock market is also a big factor," Chief Cabinet Secretary Takeo Kawamura told reporters. "I think there is a lot of uncertainties for the (economic) outlook. It is
necessary that the U.S. stock market recovers as soon as possible."

Analysts say further falls in Japanese share prices will hit banks that are already raising capital, in part, to compensate for the falling value of their large stock holdings.

Japan's second-largest bank, Mizuho Financial Group, has been forced to raise nearly $4.7 billion while No.1 Mitsubishi UFJ Financial Group raised $4.5 billion in December.

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Worse affected are smaller, regional banks exposed to property firms and small manufacturers that have suffered from both sliding demand for their products and the credit squeeze.

The Bank of Japan this month unveiled a plan to buy up to 1 trillion yen of shares held by banks, dusting off a scheme from 2002-2004, when it battled a domestic banking crisis.

The government is also planning a 20 trillion yen plan to buy shares held by banks, but the plan has not been approved by parliament.

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