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May 15, 2003

Tokyo Urges Set of Moves to Shore Up Stock Market


TOKYO, May 14 Hoping to shore up Japan's floundering stock market, economic and financial regulators approved a series of proposals today to stem the heavy selling of stocks by pension funds and to expand the use of public money to buy shares.

The steps, many of which still need parliamentary approval, are the latest in a series of attempts by the government to keep share prices, off almost 80 percent from their peak levels of 1990, from sinking any further. Hastily assembled in recent weeks after the main stock index, the Nikkei 225, fell to fresh 20-year lows, they are unlikely to make any more difference in the market than previous measures have, analysts said.

The steps also are one more retreat from Prime Minister Junichiro Koizumi's often-stated desire to withdraw the government from direct involvement in the economy and the markets wherever possible. In another example, Mr. Koizumi has spent considerable political capital over the last year pushing to privatize the country's immense postal savings system; today his cabinet agreed to discuss whether the government should press the postal savings managers to use more of the system's assets to buy stocks.

With the economy in the doldrums and the nation's banks teetering, Mr. Koizumi is under pressure to take action. But some of the proposals that would be expected to have the most effect, like using postal money to buy more stocks, have run into opposition from officials, and others, like persuading the Bank of Japan to buy more stocks held by banks, require additional approval that cannot be counted on.

The finance minister, Masajuro Shiokawa, acknowledged that the measures announced today offer few incentives for investors to buy stocks.

"The focus seems to be stock-price support rather than market revitalization," he told reporters.

One aspect of the plan that requires no further approval is the change in rules covering public pension assets managed by private companies on behalf of the government. For technical reasons, many of the companies have been moving the assets from stocks to cash to forestall losses before they return the assets to the government in October; the new rules remove some of the incentive to sell stocks by allowing the assets to be returned earlier.

The government is also considering giving banks more time to meet a requirement that they reduce their stockholdings. Banks have been selling trillions of yen in stocks to meet a September 2004 deadline for getting their stock portfolios below their core capital. The government wants to push that date back by two years.

But pushing back the deadline will lengthen the life of one of the biggest factors depressing the market: the system of cross-shareholdings between banks and their client companies. As long as the market was rising, the system cemented relationships and worked to the advantage of both borrowers and banks. But in a prolonged bear market, it has imposed huge losses on both the banks and the companies, necessitating stock sales that then worsen the losses.

"The only way to prop up the market is to get rid of this overhang of shares," said James Rosenwald, a managing director at Dalton Investments, a California-based hedge fund. "Without getting rid of these shares, the market will suffer a slow death."

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