<TABLE cellSpacing=0 cellPadding=0 width=452 border=0><TBODY><TR><TD vAlign=top width=452 colSpan=2>Published April 18, 2009
</TD></TR><TR><TD vAlign=top width=452 colSpan=2>Tokyo plans fund to put floor to market slide
By ANTHONY ROWLEY
IN TOKYO
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THE ruling Liberal Democratic Party (LDP) yesterday revealed plans for a government body to buy up to 50 trillion yen (S$756.6 billion) of shares from investors if the stock market plunges to levels that would signal an economic emergency.
The amount is equal to nearly 20 per cent of the market capitalisation of the Tokyo Stock Exchange and is available for three years, until March 2012. The LDP yesterday published outline legislation for the stock purchase scheme which was foreshadowed last week when Prime Minister Taro Aso announced a 15.4 trillion yen economic stimulus package for the recession-hit economy.
The 50 trillion yen for stock purchases does not form part of this stimulus as the sum would be financed by government-guaranteed loans. Parliament will be asked to approve the scheme before the end of this month.
News of the LDP's determination to press ahead with the plan helped push the benchmark Nikkei-225 average up by 1.74 per cent or 152.32 points yesterday to 8,907.58.
The scheme effectively puts a floor under share prices, even though the LDP has not stipulated an index level at which stocks would be purchased, analysts said.
Meanwhile, conflicting indicators emerged yesterday on the state of the economy.
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</TD></TR></TBODY></TABLE>Bank of Japan (BOJ) governor Masaaki Shirakawa warned that the economy would continue to deteriorate as personal consumption weakens and companies cut capital spending. But a Cabinet Office survey published yesterday showed that consumer sentiment improved in March from its level last December.
Share prices are critical to the health of the banking system and, with banks set to report results over coming weeks, there are concerns that losses on their equity portfolios could force banks to cut lending, thus damaging the economy even more.
Share prices hit a 26-year low last month but have since rebounded by around 20 per cent.
The BOJ itself has promised to buy up to 10 trillion yen of shares from banks but the LDP scheme is much bigger. It involves a specially constituted public body that would buy baskets of shares, through vehicles such as exchange-traded funds, on the instructions of the incumbent prime minister who would chair a financial crisis management panel.
The body would be funded by borrowing from the BOJ and from private financial institutions, with the guarantee of the government. It is also likely to issue bonds to the market, sources told BT.
The new entity would generally buy shares if the market value of a majority of listed companies fall below book value or when price/earnings ratios fall below 'normal' levels for a 'considerable time'. It could also buy shares if a market panic were seen to be developing.
Analysts say the hope is that the mechanism would rarely, if ever, need to be activated but that it would provide an important backstop to market confidence in the difficult months that lie ahead for the global financial system and for the world economy.
European Central Bank president Jean-Claude Trichet, who is visiting Tokyo, said yesterday that '2009 will be a very difficult year' and that 'somewhere along (the way in) 2010, we will see recovery.'
The BOJ is expected to cut its growth forecast for the economy when it publishes its bi-annual economic and price outlook on April 30. But some private economists have begun revising upwards their more pessimistic forecasts in the light of recently announced economic stimulus. A contraction of 3.5-4 per cent in GDP for 2009 is now forecast by some, rather than the earlier feared 5-6 per cent.
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</TD></TR><TR><TD vAlign=top width=452 colSpan=2>Tokyo plans fund to put floor to market slide
By ANTHONY ROWLEY
IN TOKYO
<TABLE class=storyLinks cellSpacing=4 cellPadding=1 width=136 align=right border=0><TBODY><TR class=font10><TD align=right width=20>
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The amount is equal to nearly 20 per cent of the market capitalisation of the Tokyo Stock Exchange and is available for three years, until March 2012. The LDP yesterday published outline legislation for the stock purchase scheme which was foreshadowed last week when Prime Minister Taro Aso announced a 15.4 trillion yen economic stimulus package for the recession-hit economy.
The 50 trillion yen for stock purchases does not form part of this stimulus as the sum would be financed by government-guaranteed loans. Parliament will be asked to approve the scheme before the end of this month.
News of the LDP's determination to press ahead with the plan helped push the benchmark Nikkei-225 average up by 1.74 per cent or 152.32 points yesterday to 8,907.58.
The scheme effectively puts a floor under share prices, even though the LDP has not stipulated an index level at which stocks would be purchased, analysts said.
Meanwhile, conflicting indicators emerged yesterday on the state of the economy.
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Share prices are critical to the health of the banking system and, with banks set to report results over coming weeks, there are concerns that losses on their equity portfolios could force banks to cut lending, thus damaging the economy even more.
Share prices hit a 26-year low last month but have since rebounded by around 20 per cent.
The BOJ itself has promised to buy up to 10 trillion yen of shares from banks but the LDP scheme is much bigger. It involves a specially constituted public body that would buy baskets of shares, through vehicles such as exchange-traded funds, on the instructions of the incumbent prime minister who would chair a financial crisis management panel.
The body would be funded by borrowing from the BOJ and from private financial institutions, with the guarantee of the government. It is also likely to issue bonds to the market, sources told BT.
The new entity would generally buy shares if the market value of a majority of listed companies fall below book value or when price/earnings ratios fall below 'normal' levels for a 'considerable time'. It could also buy shares if a market panic were seen to be developing.
Analysts say the hope is that the mechanism would rarely, if ever, need to be activated but that it would provide an important backstop to market confidence in the difficult months that lie ahead for the global financial system and for the world economy.
European Central Bank president Jean-Claude Trichet, who is visiting Tokyo, said yesterday that '2009 will be a very difficult year' and that 'somewhere along (the way in) 2010, we will see recovery.'
The BOJ is expected to cut its growth forecast for the economy when it publishes its bi-annual economic and price outlook on April 30. But some private economists have begun revising upwards their more pessimistic forecasts in the light of recently announced economic stimulus. A contraction of 3.5-4 per cent in GDP for 2009 is now forecast by some, rather than the earlier feared 5-6 per cent.
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