Tokyo fall prompts confidence measures

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The Independent Online
TOKYO - The Japanese authorities yesterday stepped in with a series of confidence-boosting measures as a further sharp drop on the Tokyo stock market took share prices to their lowest levels for more than six years.

The Nikkei average plunged 620.14 points, or 4.15 per cent, to close at 14,309.41, its lowest closing level since 12 March 1986, and some 63 per cent off its December 1989 peak. Prices slumped on prospects that companies will trim profit forecasts for the year to March 1993 and fears that a government economic package to be announced later this month would disappoint investors.

After the market closed, Tsutomu Hata, the Finance Minister, announced measures apparently aimed at deflecting a sell- off, restoring confidence in the financial system and keeping a potential credit crunch from stifling economic recovery. Mr Hata said the government would:

Ask investors to limit 'easy' profit-taking in shares.

Suspend a guideline that corporations limit dividend payments to 40 per cent of profits.

Ask banks to make lending easier to prevent tight credit from undermining healthy economic activities.

Allow banks more financial tools to help them meet international capital adequacy standards.

Consider steps to let banks sell off real estate held as collateral against non-performing loans.

Mr Hata admitted he was worried about the potential for further share price plunges. 'A vicious cycle will be created if profit-taking leads to further share price declines,' he said.

Some analysts said Mr Hata's comments were a welcome sign that the ministry was taking the market's troubles seriously. But they said there were few measures not anticipated by the market.

'They're all things that have been under consideration,' Jeff Bahrenburg, strategist at Merrill Lynch Japan, said. 'It's helpful to know that they're concentrating on the issue, it's a good sign . . . but I wouldn't think they'd be enough.'

Market analysts have become increasingly concerned that the emergency economic package to be unveiled by the end of August would not be enough to kick-start the economy or reform the structural ills of the stock market.

The ruling Liberal Democratic Party, which wants an economic package worth more than Y6,000bn ( pounds 25bn), is battling with a parsimonious Finance Ministry, which wants to limit spending. Party leaders indicated they would not limit their attack to the fiscal front but would press the authorities for easier credit to boost the economy and share prices.

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