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Tuesday, Oct. 28, 2008
Aso's call for action fails to buoy Nikkei
Stocks hit 26-year low; Nakagawa told to boost curbs on short-selling
Tokyo stocks renewed their plunge on Monday, with the key Nikkei index falling 6 percent to a fresh 26-year low despite Prime Minister Taro Aso's call earlier in the day for emergency measures to help stabilize the market.
The Nikkei 225 bled 486.18 points to close at 7,162.90, its lowest level since Oct. 7, 1982, when it finished at 7,114.64.
The broader Topix, covering all first-section issues, was down 59.65 points, or 7.40 percent, to end at 746.46, its lowest finish since January 1984. It was dragged down by banking and other financial issues that heavily influence the index.
Megabank groups fell sharply on media reports that Mitsubishi UFJ Financial Group Inc. was considering raising up to ¥1 trillion in new capital by the end of March to shore up its capital base.
Mizuho Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. are also reportedly contemplating huge capital increases.
It all came despite Aso's order for the government and ruling coalition to craft market-stabilization measures.
Finance Minister Shoichi Nakagawa said Aso told him in the morning to tighten curbs on the short-selling of stocks, with the measure taking effect in early November.
Speculative short-selling is believed to be a key factor behind the recent market tumble.
Aso told Nakagawa to consider increasing the scale of government-backed bank recapitalization from the current ¥2 trillion as stipulated in a bill to revive a law to infuse public funds into faltering financial institutions.
The bill was submitted to the Diet on Friday.
Aso also told Nakagawa to partially relax capital-adequacy ratios for banks and take steps to spur more stock investment.
"I even now think the financial system is sound, compared with Europe and America," Nakagawa told reporters, although he voiced some pessimism about the situation.
"I am very concerned, because an extremely radical fall in stock prices will never have a good impact on the Japanese economy or the people's sentiment," he said.
The market stabilization steps will be introduced promptly to lessen public concerns about the nation's financial institutions, he said.
"(Aso) told me to reconstruct trusting relations between the government and the market," Nakagawa said, adding he was told to take whatever bold action is necessary.
The Nikkei's dive Monday is proof market players view the government's economic steps so far as inadequate, according to stock dealers who reacted coolly to Aso's new measures.
The latest steps were "insufficient" to stabilize the market, said Yoshifumi Kikuchi, general manager of Unicom Group Holdings Inc.
The government "must not lag behind" the market, he said, criticizing its initially slow reaction.
Investors now want government action, not words, to revitalize the market, Kikuchi said, suggesting taxes on investors should be eased to boost stock purchases.
Kazuki Miyazawa, market analyst at Daiwa Securities SMBC Co., said measures that encourage corporate investment in plants and equipment, and individual tax cuts, are needed to boost the economy.
"If any lead to ease economic concerns comes up, stock prices will rally," he said, suggesting public expenditures made without a specific focus won't bring about a recovery.
Information from Kyodo added