Intervene to keep 'em keen

INTERNATIONAL MARKETS: TOKYO

JAPANESE stocks may rise this week, led by steel makers and other industries hurt by weak domestic demand, on speculation the government will buy more than a trillion yen (pounds 4.7bn) of shares by the end of March. Bonds are also likely to rise, driving yields to new lows, as investors are sceptical that any government measures will revive the economy.

"It looks like the measures will simply be life support for the weak economy," said Yousuke Miyake, senior portfolio bond manager at Nissay Asset Management. "I'll keep long positions and may buy more."

The government may spend up to 1.3 trillion yen of postal savings and insurance money in an attempt to push the benchmark stock index up to 18,000. "It looks like we'll be riding another wave of intervention," said Yoshio Inamura, manager at Tokyo-Mitsubishi Asset Management. "We'll probably rise to 17,300 early in the week, and we could go higher."

The benchmark Nikkei 225 index last week fell 71.83, or 0.42 per cent, to 17,060.14. The broader Topix index of all companies listed on the first section of the Tokyo Stock Exchange barely budged: it fell 11.75 to 1276.20.

Gains will probably be paced by steel makers - which have slipped 33 per cent as a group in the last year - and other industries whose share prices have been weighed down by depressed demand for their products at home.

"Domestic shares like steel will rise fastest because they're cheap and they've been so oversold," said Mr Inamura. "The exporters are losing profit momentum, and their future growth has been priced into their shares."

Members of the ruling Liberal Democratic Party have called for the government to push the index up to 18,000 by 31 March, the date Japanese companies generally settle their accounts, to help prevent them from posting valuation losses on equity.

Pressure on the government to give the market a boost - either directly by buying shares with public funds or indirectly by dangling out the prospect of more spending for the economy - will reach new heights this week because many trust banks and other institutional investors will begin closing their books as early as 20 March.

"Institutional investors have to sell to make their accounts look better," said Ryuichi Endo, a fund manager at Japan Investment Trust Management. "The question is whether expectations of government action can overcome that kind of drag on share prices."