Toyko Big Bang a damp squib

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JAPAN'S keenly anticipated programme of financial deregulation, the so-called "Big Bang", began with a feeble fizz yesterday, with share prices falling amid continuing economic sluggishness.

The Nikkei Stock Average fell by 285.5 points to close nearly 2 per cent down at 16,241.66, on reports that a property company, Daiichi Corporation, would go into liquidation, leaving debts of 440bn yen (pounds 2bn).

Unease at the news, the latest in a series of corporate bankruptcies, offset mounting expectations that the government will soon announce a tax cut of 4 trillion yen in an attempt to stimulate the economy. More bad news is likely this morning with the publication of the "tankan", a quarterly index of business sentiment, which is expected to record a further plunge in corporate morale.

Gloom about the economy overshadowed the launch of the "Big Bang", a series of deregulatory steps intended to emulate the financial reforms carried out in New York and London in the 1970s and 1980s.

Ryutaro Hashimoto, the Japanese Prime Minister, is arriving in London today for the second Asem summit between Asian and European countries. Tony Blair, opening the meeting formally tomorrow, will tell the Asian leaders that Europeans are not "fairweather friends", and that both regions must work together to solve Asia's financial problems.

However, when Japan's finance minister visited London in February for the G7 summit, he found himself on the receiving end of a lecture about the need to stimulate his flagging economy and financial sector.

With the Asian crisis high on the agenda, the Prime Minister will stress the importance of keeping trade and investment flowing, and opening new markets.

The summit will also see the formal launch of a trust fund, set up at the World Bank on the initiative of the UK, to help Asian countries reform their financial systems. Britain has contributed pounds 5m to the fund.

Japan's financial reforms have been scheduled to take effect between 1996 and 2001, but two of the key measures came into effect yesterday, the first day of the new financial year.

As in Britain's "Big Bang" in 1986, stock broking commissions have been liberalised, with the intention of opening up the stock market to a much wider variety of institutional players. As the reforms progress, stock brokers, banks and insurance companies will be allowed to compete in one another's businesses.

Foreign exchange controls were also removed, making it easier for Japanese companies and individuals to invest abroad. This appears to have been a factor in the fall of the Nikkei since Japanese funds can now flow more readily to overseas markets where they can benefit from better interest and a wider range of investment possibilities.

In the long term, however, the measures are intended to have a stimulant effect on Japanese institutions by exposing them to foreign competition.

A new system, known as prompt Corrective Action, allows the Ministry of Finance to close down banks which are judged to have insufficient capital.

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