Tokyo Urges Set of Moves to Shore Up Stock Market

Reviewed by Hitoshi URABE

Article:
"Tokyo Urges Set of Moves to Shore Up Stock Market"
(By Ken Belson) The New York Times
http://www.nytimes.com/2003/05/15/business/worldbusiness/15YEN.html

Comments:

The government has come up with a package of measures to boost stock prices. This might sound familiar but this time it has a certain level of significance. Until recently, those disturbed by falling stocks were considered to be limited to companies that must recognize and book the losses on their stock investments and state it in their financial reports. As such, the issue used to emerge every year in March, when most of Japanese companies face the end of fiscal term, and that was when the government was expected to implement relief measures. Under these circumstances, the measures suggested would be very shortsighted and would often skew the market. When the end of fiscal passes, no one except those whose livelihood depend on stock market would care whereabouts of stock prices other than they becoming a subject of casual conversation when they move radically.

Another factor is the Prime Minister Koizumi, who has kept the position that stock prices is merely a result of economic activities and should not be considered as a leading indicator of economy or related policies. Mr Koizumi is correct in a way, of course. But as where a fever could only be a result of a common cold but it could harm the human body, heavily depressed stock prices, whatever the cause, could be detrimental to the whole economy. It seems Mr Koizumi has at last recognized this analogy, though not officially, in allowing his aids to formulate the package.

The package announced this time, therefore, includes some new approaches aimed at obtaining medium term effects, which involve a number of public agencies such as Bank of Japan and Japan Post, as well as a proposal to look into taxation aspect to promote security investment.

Responses from critics and market participants toward this package, however, have been lukewarm if not negative. These responses should be discounted, however. For those who make a living in the market, including many commentators, any measure the government could take would be insufficient. In addition, since the package this time is not necessarily aimed for stock prices to surge immediately, it would take some time for the measures to take effect.

That said, there is still a very fundamental issue not tackled yet in this discussion. Measures to make the stock market more attractive to participants are necessary, especially for individual investors.

For a long time, it was a sentiment among Japan's people that stock investment is a sin, a gambling which respectable individuals should not become involved in. The underlying mentality is not uncommon elsewhere, based upon the notion that people should live by the sweat of their brow. But in case of Japan, individual investors have also been exploited by the so-called professionals through means barely legal, until recently when such transactions began to surface as scandals. The rate of personal holding of stocks was at 24.4% in 1989, but presently it is estimated to be below 10%. A part of the reason for the decline was the falling stock prices during the period, but it was also the people's disillusionment toward the market where unethical rules prevailed and the "professionals" confiscated amateurs of their assets.

Many of so-called emergency measures to lift the market in the past have been considered fouls by quiet individual investors as means to manipulate the market through methods not previously written in the rulebook. It will therefore be a long uphill battle to regain confidence of the market by individuals and potential investors, but it is the only way to reinstate the stock market in Japan.