Japan Ready For Share-Buying Spree

Reviewed By Hitoshi URABE

Article:

"Japan ready for share-buying spree"
http://www.thetimes.co.uk/printFriendly/0,,1-5-204834,00.html

Comments:
"Bank's Shareholdings Purchase Corporation" is just about to begin its operation. As the name implies, its job is to buy the stocks owned by banks at market value. It is intended to assist banks to decrease the volume of stocks held, so that they would be less vulnerable to fluctuations of stock prices. At the same time, it is intended to avoid a huge supply of shares getting dumped into the market, avoiding further decline of prices.

The Corporation is funded by government backed borrowing of 2 trillion yen, and the banks participating also chip in, where major banks have so far put up 2 billion each. Each bank is then allowed to sell the shares to the Corporation up to twenty times its contribution, and 8 percent of the proceeds from the sale is to be added to the fund. At the end of the day, stipulated as ten years away, whatever gains realized by the Corporation will be split pro rata among the banks, and losses incurred shall be covered by the contributions from the banks, but any shortage will be borne by the Government. It would be controversial indeed, then, as it is asking the taxpayers to adopt a wishful thinking after continuous disappointment for a decade.

The article also reports of authorities stiffening the regulation on "short-selling". There are many arguments against this measure noting that such a regulation itself would become a cause of distortion in the market. It might worth mentioning, however, it is a fairly common sentiment among Japanese, often even with those involved in finance, that "selling something you don't have" is considered obscene if not a crime.