Japan Will use Public Funds to Stabilize Stock Market Prices

“Share going down is undesirable”

The Japanese government is considering ways to prop up the ailing stock market, as tumbling share prices threaten to erode further Japanese banks’ capital and damage their ability to lend to cash-strapped businesses.

Kaoru Yosano, who currently occupies the three key posts of finance minister, financial services minister and economics minister, on Tuesday said he had instructed government staff to look into measures to counter falling stock prices.

“It is undesirable for share prices to fall, causing unnecessary consequences. I discussed with government staff last Friday what we could do generally to deal with [falling] share prices. We must consider this, keeping an eye on market moves,” he said.

Mr Yosano’s comments come as the broad-based Topix index closed at its lowest level in 26 years, at 730.28.

The benchmark Nikkei average also came dangerously close to a 26-year low before paring losses to close down 1.5 per cent at 7,268.56.

The stock market’s relentless decline ahead of the March year-end has alarmed business leaders as well as policymakers.

Fujio Mitarai, chairman of the influential Keidanren business lobby, on Monday called on the government to set up a public body to buy shares in the market.

After expressing appreciation for the government and Bank of Japan’s measures to assist companies to meet their borrowing needs, Mr Mitarai said: “In addition, if it is possible to support stock prices using public funds, we can expect a strengthening of the financial health of financial institutions and an increase in lending.”

Japanese banks, which hold a high level of stocks as capital, have suffered from the sharp plunge in share prices.

The Tokyo market is down about 18 per cent so far this year and analysts note that if share prices continue to slide, Japanese banks – which have already turned to investors for billions of dollars in additional capital – could be forced to raise further funds in order to meet capital adequacy requirements.