Confusion abounds in Japan

in Japan threaten to trigger a meltdown in financial markets around the world
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The Independent Online
Confusion still reigned in Tokyo on Saturday, eight days after Yamaichi Securities, Japan's fourth-largest brokerage house, went bust. But fears that the country is headed for a full-blown financial crisis have subsided, at least for the moment. Japanese bank stocks, which have dropped more than 30 per cent this year, rose 3.2 percent on Friday.

Part of the optimism stem- med from a feeling among investors that the dangers facing Japan's financial sector were so great that the government had no choice but to do whatever proves necessary to shore it up.

The ruling Liberal Democratic Party wants to boost the Deposit Insurance Corporation, a fund set up by lenders to reimburse depositors when banks fail. The LDP is proposing the government borrow up to 1 trillion yen (pounds 4.7bn) for the safety fund from the Bank of Japan as a first step toward coming up with the total of 25 trillion yen that will be needed to clean up the country's financial sector.

Japan, with its $228bn in foreign currency reserves, has the money to pay that bill. The question is whether the government has the political will - and courage - to use the money in this manner as it would mean abandoning its budget deficit eduction plan.

"The government doesn't have the stomach for the radical change needed, though I'm not too sure they have a choice," said Richard Jerram, an economist at ING Baring Securities Japan.

The government's actions have so far failed to convince everyone. A manager at Taiheiyo Securities committed suicide Thursday by jumping off the roof of a seven-story building in Osaka. Taiheiyo is part-owned by Yamaichi.

Meanwhile, depositors demanding their money marched to Yamaichi branches across the country on Tuesday. The scenes were repeated at Yasuda Trust & Banking, the country's fourth largest trust bank, after Standard & Poor's cut its credit rating to "junk" status. Yasuda was forced to issue a statement claiming its finances and assets were in a "totally healthy" position. Yasuda's stock rose 30 yen to 109 on Friday, having fallen as low as 79 on Wednesday and Thursday.

"If a bank's stock falls to 75 yen, it's over" said a retired businessman after he withdrew 70 million yen from Yasuda and placed it in Tokyo-Mitsubishi, the nation's biggest bank.

Securities regulators, looking for someone to blame for the battering bank stocks have taken, summoned the heads of foreign brokerages for questioning about their selling of bank shares.

Copyright: IOS & Bloomberg

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