PPT Japan Style

Discussion in 'Wall St. News' started by Illum, May 28, 2009.

  1. Illum


    Discussed openly, including proposed amount to be used. Well more than discussed, they actually debated the pros and cons. Refreshing. They seem to understand it could distort the market, and lower confidence.

    Japan May Scrap 50 Trillion-Yen Plan to Prop Up Stock Market

    May 28 (Bloomberg) -- Japan’s ruling Liberal Democratic Party may abandon a bill that would set aside 50 trillion yen ($520 billion) to buy shares from the market because stocks have rebounded from a 26-year low, lawmakers said. “A system of buying stocks directly may provide a sense of relief when shares plunge,” Naokazu Takemoto, chief director of the LDP’s lower house finance committee, said in an interview in Tokyo on May 26. “But stocks have been stable, so the measures aren’t necessarily that essential.”

    Investor optimism that the worst of Japan’s deepest postwar recession is over has led the recovery in the Nikkei 225 Stock Average, which tumbled a record 42 percent last year. Direct purchases would be the first among the Group of Seven industrialized nations and would affect prices more than the Bank of Japan’s program of buying shares from lenders to cushion their balance sheets.

    “I don’t think there’s really a crisis in Japanese stocks to begin with,” said Naomi Fink, Japan strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in Tokyo. “It might even undermine Japanese equities because foreigners are going to say ‘wow, the government is propping up prices and how do we know whether it actually reflects the value of the firms or not?’”

    The bill was submitted to parliament on April 27 as part of Prime Minister Taro Aso’s record 15.4 trillion yen stimulus package. Under the plan, the government would set up a state- owned entity to buy exchange-traded funds, which are instruments that track stock indexes, as well as equities listed in the indexes and related derivatives for three years.

    Raise Money

    The body would raise money by borrowing from the Bank of Japan or commercial lenders as well as issuing bonds, and the government would set aside 50 trillion yen to guarantee the investments. Deliberations on the law haven’t taken place because the opposition Democratic Party of Japan, which controls the upper house, is against the measure. While the ruling coalition can use its two-thirds majority in the lower house to pass the bill if it’s rejected, Takemoto, 68, signaled the LDP may not force the bill through parliament.

    “Whether we need to revote and pass the bill even after it’s defeated in the upper house depends on economic conditions,” Takemoto said. “People were split about the bill to begin with and even a majority of lawmakers regarded as economic experts in our party are opposed to the idea.”

    Finance Minister Kaoru Yosano said on May 22 that “the argument is losing force” given that stock prices are recovering. The Nikkei has risen 34 percent since March 10, when it fell to 7,054.98, the lowest since October 1982.

    Distort Prices

    Masaharu Nakagawa, the DPJ’s shadow finance minister, said the party opposes the measure because it may distort stock prices. He said the government should consider buying stakes in financial institutions should plunging equities erode their capital. “It goes against the market’s mechanisms to begin with,” Nakagawa, 58, said in an interview on May 26. “We’re absolutely against it. Even discussing it would look bad.”

    As a separate measure, the government has already set aside 20 trillion yen to purchase stocks owned by banks to bolster their capital. The Bank of Japan has decided to buy 1 trillion yen of shares held by lenders to ease a credit squeeze. The government last bought stocks owned by financial institutions from 2002 to 2006. Yoshinori Ohno, an LDP lawmaker who compiled the bill, said even though equities have recovered, it’s important to show the government is committed to preventing a plunge of stock prices given the severity of the current financial crisis.

  2. Todays Nikkei move was PPT-like...
  3. pcvix


    In what way, if I may ask?
  4. cue the low in Japanese Stocks...
    smells eeirly similar to the Swiss Central Bank selling gold at 280 bucks/oz
  5. Given 2 % Dow Jones loss Nikkei ends session 0,13 % on the positive side. Since when do we see the Japanese decoupling from the US more then 2 % ? Nice action, though.
  6. pcvix


    Good point. Thanks.