Japan's government is looking at expanding stock buying and taking other steps to support the share market, Finance Minister Kaoru Yosano said on Tuesday, amid growing fears for the economy as sliding stocks erode the capital of banks.
Banks, large holders of stocks in Japan, have been forced to raise billions of dollars in new capital as their holdings slide in value, and the Bank of Japan has already launched a scheme to buy stocks directly from them.
But analysts doubted whether the government, which faces a paralysed parliament and a tough election this year, could organise a broader stock buying scheme and whether such purchases could boost shares in the midst of a global financial crisis.
The Nikkei stock average fell 1.5 percent on Tuesday to 7,268.56, near 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 0.7 percent, setting a 25-year closing low for a third day in a row.
Officials would look into ways to support the stock market including setting up a 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," Yosano told a news conference after a cabinet meeting.
Analysts said options for share buying ranged from an expansion of existing state share purchases to setting up a stock-buying agency as Japan had in the mid 1960s.
But BNP Paribas economist Azusa Kato said the government should stick to fiscal stimulus as it had little chance of sustainably boosting share prices.
"If the government wants to buy stocks to push up stock prices, it will have to buy up to the level of nationalisation," Kato said.
"Even if stock prices go up as a result of such action, that will last only for a day or two, or a week at most, and will end up providing others with the best opportunity to sell stocks."
The government has previously unveiled a 20 trillion yen plan to buy shares held by banks but it is stalled in parliament.
That comes on top of a central bank plan to buy up to 1 trillion yen of shares held by banks, as the central bank tries to ensure a credit lifeline is maintained to businesses facing a cash crunch.
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 the government would study measures Japan has taken in the past to support share prices, including a share-buying agency set up in the 1960s.
Then, the government set up two consortiums, in which private brokerages and banks took stakes, that bought about 400 billion yen ($4.2 billion) in shares to ease selling pressure over two years.
Some saw that as a success but analysts note that Japan has changed from a rapidly growing developing economy in the 1960s.
Japan intervened heavily again in domestic share markets in the 1990s to prop up prices, using savings from public pension funds. But those efforts were deemed failures.
Analysts said the government could no longer lean on nominally independent agencies to buy shares and some were in no financial state to do so anyway.
A more formal scheme would be tough to set up because of the paralysed parliament, where opposition parties control the upper house and are trying to force an early election.
"Trying to carry this out given the current shaky state of politics may be the biggest problem," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Securities.
GLOBAL SLIDE
The head of Japan's main business lobby, Nippon Keidanren, called this week for measures to support share prices, with the Nikkei share average down almost 20 percent so far this year, after falling a record 42 percent last year.
But, with the global crunch also sending Wall Street sliding, another cabinet minister also cast doubt on such an approach.
"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.
The two biggest banks, Mizuho Financial Group and Mitsubishi UFJ Financial Group Inc, have raised more than $9 billion between them.
Worse affected are smaller, regional banks exposed to a sinking property market and struggling small manufacturers at the centre of a rising tide of bankruptcies.
"The problem is very simple. With the Nikkei at 7,000, basically the banks have 5 trillion yen in hidden losses on shareholdings," said Jesper Koll, chief executive of Tantallon Research Japan.
