Tokyo's Infusion of Public Funds Buoys Stock Market

A RISKY experiment to prop up Japan's stock market with the savings deposits of workers appears to be paying off.

And other government steps to stimulate a recession-hit economy also seem to be working, giving new meaning to the old appellation of "Japan Inc."

A strong official hand in the economy, coupled with cooperation among competing firms to stay in line with bureaucratic advice, has helped Japanese companies to end their fiscal year on March 31 with a collective sigh of relief.

A steep drop in stock prices last year and near-zero growth in the economy had worried many Japanese companies and financial institutions that they would not be able to close their books showing a profit.

Japan's 21 major banks were especially worried that their stock portfolios might not have enough value to meet the minimum capital-adequacy ratio of 8 percent imposed by the Bank for International Settlements starting this month.

But on March 31, the stock market's Nikkei Average recovered to 18,591, nearly the same level of a year ago. The market's all-time high was 38,915 in late 1989. With the bursting of Japan's economic bubble starting in 1990, the index fell to a dangerous low of 14,309 last August.

That triggered a quick response by the government to "guide" the markets back to health. As one step, the ruling Liberal Democratic Party put together a $93-billion economic stimulus measure that began to take effect in February. And another package of a possible $110 billion to $120 billion is expected by mid-April.

This latest package is being rushed into action not only to give the economy a second boost, but also to enable Japan to present it as a "gift" during the visit of Prime Minister Kiichi Miyazawa to Washington on April 16 in a crucial summit with President Clinton.

The United States has been pressuring Japan to boost its domestic demand and thus its imports as one way to cut a burgeoning trade imbalance. In February, imports from the US were down 5 percent from a year earlier, helping to spur tough rhetoric against Japan by Clinton trade officials.

In early 1992, Japan promised the US that its gross national product growth would top 3 percent that year. But the Economic Planning Agency estimates the economy grew at only 1.5 percent, the slowest in 18 years. The government's measures should stoke private demand and bring the economy back to 3 percent growth over the next year, says Robert Feldman, economist for Salomon Brothers in Tokyo.

The first buds of economic recovery are sprouting, Finance Minister Yoshiro Hayashi says. The one bright spot, according to an official report, is government spending, which the report described as "robust."

In a largely secretive action, Japan's Finance Ministry has been funneling about $41 billion from the nation's government-run savings program into the stock market and has cajoled financial institutions to put in about $70 billion more, according to Kenneth Courtis, senior economist at Deutsche Bank Capital Markets (Asia).

Mr. Courtis warns that people's savings may be put at great risk, but for now the momentum of the stock market has been boosted. Since March 4, stock prices have rebounded more than 12 percent.

Many critics says the government manipulation has distorted the market, and has taken Japan back to its postwar mercantile ways.

In tough times, says economics professor Yasuo Takeuchi of Seikei University in Tokyo, Japan's government acts as referee and training coach for private companies, coordinating their activities, and restricting competition. And Japanese companies often collude and then share the gains from their collusion. He adds that the system is designed so that no one can be held accountable for either success or failure.

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