TOKYO, March 16: Tokyo financial markets soaked up pessimism on Monday amid another barrage of criticism from ruling party legislators on prime minister Ryutaro Hashimoto's handling of the economy.The markets largely ignored a senior Liberal Democratic Party (LDP) member's call for a 20 trillion yen ($155 billion) economic package but were spooked by comments from another LDP member on the negative net worth of some Japanese banks. The dollar briefly rose to 129 yen in afternoon Tokyo trading on comments by LDP senior official Seiroku Kajiyama that he had heard of reports that more than 10 Japanese banks might have negative net worth.
"The market currently is more responsive to bad news than good, shrugging off remarks by (another senior LDP official Shizuka) Kamei," a European banker said. Kamei said in a speech that Tokyo should form a 20 trillion yen economic stimulus package, including five trillion yen in income, inheritance and housing investment tax cuts. He added that Japan should repeal itsfiscal reform law, and immediately after that issue 10 trillion yen worth of government bonds.
Kamei, known to be opposed to the current party leadership, later added in an interview with Reuters Financial Television that Hashimoto must take responsibility for mishandling the economy, and one way would be to quit.
The benchmark Nikkei stock average closed down a little more than one per cent at 16,861.14 and Japanese government bond yields dropped to record lows in afternoon trade on pessimism over the country's economy.
"The measures sounded out by the Liberal Democratic Party and the government may help Japan ride over the end-of-March book closing, but there is no long-term vision for the economy," said Yasuhiko Ushikubo, an economist at Industrial Bank of Japan.
"Policy steps are extremely short-sighted," he added. Asked if the government was likely to take special steps to boost the Nikkei index to the 18,000 point level by the end of March, which analysts have said may be a target level for thefiscal year-end, Kamei said it would be difficult to achieve this on so-called "price-keeping operations" (PKO) alone. "PKO" refers to market-supporting purchases by the government using public funds. "The results may be quite good if they make some decisive change in policies. Merely propping the stock market by infusions of government money will not be enough to make stocks rise," he added.
Chief LDP policy maker Taku Yamasaki has said the party wants to form a 10 trillion yen economic stimulus package with public works spending rather than tax cuts, of which some party officials said fresh spending may be limited to two trillion to three trillion yen.
Finance minister Hikaru Matsunaga maintained the official government line on Monday, telling a parliament budget committee that the priority was on passing the regular state budget for the fiscal year beginning on April 1.The government wants to pass the 1998-99 regular budget through the Lower House by as early as Friday. Many expect the government totalk openly about an extra budget after that.
The LDP has suggested using one trillion yen of state postal savings and insurance funds to help push the stock market above 18,000 points by the end of March. Matsunaga told the budget committee that he has not been formally informed by the LDP about this idea and that it was up to postal ministry, which manages the funds, to decide. But health and welfare minister Junichiro Koizumi told the same committee that Japan should avoid giving the impression that it was trying to manipulate stock prices.
"The problem is that the cycle of cynicism about Japanese announcements is so profoundly fast now that almost before you can say the words, the market has discounted it," investment adviser Richard Medley told Reuters Financial Television.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
