"Japan plans emergency share purchases
By Michiyo Nakamoto in Tokyo
Published: April 17 2009 05:41 | Last updated: April 17 2009 18:12
Japan’s ruling Liberal Democratic Party on Friday unveiled details of its proposed Y50,000bn scheme to allow the government to buy shares from the market if share prices fall to an extent that is seen as an economic emergency.
LDP lawmakers said the proposals would be submitted to parliament on April 27, the same day a supplementary budget to fund a record Y15,400bn ($155bn) stimulus package is put forward.
The stock-buying facility, which would run only until March 2012, highlights concerns about the impact of the sharp fall in Japanese share prices, which hit a 26-year low last month. The LDP’s plan is in addition to the stimulus package
Masaaki Shirakawa, the Bank of Japan governor, on Friday warned that fears about the fall in stock prices or a worsening economy could damage the ability of financial institutions to perform their role in financial intermediation.
“Commercial paper and corporate bond issuance is improving. But Japan’s financial environment remains severe as a whole with more companies, regardless of their size, saying funding conditions and banks’ lending attitudes are severe,” Mr Shirakawa told BoJ regional branch managers on Friday.
Since Japanese banks count a substantial level of stock holdings as part of their capital, a sharp decline in share prices hurts their ability to increase assets.
Under the LDP’s proposal, a new public body would be set up to buy the shares with funds raised from the Bank of Japan as well as private banks and guaranteed by the government.
Strict criteria would have to be met to trigger the buying of shares, and the prime minister would head a financial crisis committee responsible for giving the go-ahead.
For example, action could be triggered by the market’s price-formation function being seriously damaged or the price earnings ratio of companies dropping to below “normal” levels for an extended period. Panic selling could also trigger buying by the public body.
The decision to adopt the stock-buying plan comes in spite of considerable opposition to government intervention in the market.
Some sceptics see it as an election ploy by the LDP. “It appears to be a political gambit to make sure that the stock market doesn’t collapse during the election campaign,” said an equity salesperson at a western investment bank."