TOKYO, May 6 - Japan's ruling coalition parties are expected to propose an array of steps later on Tuesday to boost the stock market, encouraging investors to bet on a recovery despite the failure of similar attempts over the past year. Policymakers from the powerful Liberal Democratic Party (LDP) and their coalition partners are set to call on the government to establish a stock-buying entity and use the massive reserves of the postal savings system to buy stocks. They are also likely to call on the Bank of Japan to buy exchange-traded stock funds, or ETFs, as well as bank shares. It's far from clear whether the government and BOJ will agree to the measures, or whether they will have lasting impact.
But Hideyuki Aizawa, a veteran LDP lawmaker and proponent of a stock boosting package, said over the weekend he had no doubts that the plans would help the Nikkei average recover from current levels of around 8,000, near 20-year lows. "Ten thousand, easily," Aizawa said on a Sunday television programme when asked what the package could do for the Nikkei. The Nikkei rose 2.86 percent to 8,133.34 in morning trading in anticipation of the measures. "We've got the combined factors of anticipation of the ruling coalition proposals and the recent U.S. rises driving up the market," said Yutaka Miura, deputy manager of the equity information section at Shinko Securities.
"But there is still the remaining danger of disappointment after the measures are actually unveiled." Taku Yamasaki, the LDP secretary general, told reporters ahead of a meeting of coalition policymakers that everyone regarded the steps as crucial. "I'm expecting serious debate," he said. The government is set to discuss the package when its Council on Economic and Fiscal Policy meets on Thursday. Economics Minister Heizo Takenaka, however, told reporters on Tuesday he was opposed to artificially boosting the market. "We have no intention of intervening directly in the stock market," he said, adding that the key to improving market performance was long-term structural reform.
PRESSURE ON KOIZUMI
The coalition's call for rescuing stock prices, although criticised by many analysts as short-term political opportunism, will add to pressure on Prime Minister Junichiro Koizumi who faces a leadership election in September. Koizumi's personal popularity, which has kept him in the top job, looks increasingly at risk from bad economic news. Daily newspaper headlines calling attention to falling stocks are battering his image and handing more ammunition to his opponents, although he and his cabinet ministers have insisted on sticking to his policies of structural reform.
Most of the plans being raised by Aizawa and his colleagues would result in the government directly intervening in the market, a stance Koizumi's government has been wary of taking. The government introduced tax breaks for stock market investors last year, but such measures, as well as repeated fiscal stimulus over the past few years, have failed to lift either the stock market or the general economy. Proposals for the BOJ to buy ETFs and bank shares would mark a shift in the central bank's policy into riskier territory, but are not expected to be accepted right away. Bank of Japan Governor Toshihiko Fukui has already said he is opposed to the idea of the central bank buying stocks in banks, and has expressed caution about buying ETFs, citing the risks to the central bank's own finances.//