Aso orders gov't, ruling bloc to take market stabilization steps

TOKYO, Oct. 27 Kyodo - Prime Minister Taro Aso on Monday instructed the government and the ruling
parties to immediately carry out all available measures to stabilize stock
markets, including tighter regulations on short selling, after Tokyo stocks hit
a 26-year low.
''Stock prices greatly influence the real economy. In that sense, we have to
consider various measures and implement them,'' Aso told reporters after
conveying his order to economic ministers and senior ruling party officials.
The prime minister said some of the envisioned steps, including a larger
government fund to recapitalize ailing banks and the facilitation of employee
stock purchases, could be implemented ''today or tomorrow.''
Despite the premier's immediate order to work out market stabilization steps,
Japan's key Nikkei stock index went into yet another free fall Monday
afternoon, falling 6.36 percent from Friday to finish at 7,162.90, its lowest
close since October 1982.
Aso told reporters Monday evening that he believes it takes time for
market-related measures to show effect. ''I want to have people take some time
to look (at the measures), so I won't be glad and sad by turns,'' he said.
Finance Minister Shoichi Nakagawa said earlier in the day that Aso had
expressed ''strong concern'' about the stock price movements and stressed the
importance of ''rebuilding confidence between the government and market
participants.''
Nakagawa, who doubles as financial services minister, said he thinks Japan's
financial system is relatively sound compared with the United States and Europe
but that the government will swiftly implement necessary measures to prevent
concerns from becoming a reality.
Nakagawa and Economic and Fiscal Policy Minister Kaoru Yosano said the
emergency steps will be part of the government's upcoming additional stimulus
package, which is expected to be finalized later this week. Aso called for the
front-loading of economic measures, they said.
The finance minister said he expects that stricter rules on the short selling
of stocks could be implemented in early November, after the Aso Cabinet
endorses such measures in a meeting slated for Friday.
Speculative short selling is believed to be one factor behind the recent market
tumble. In such trading, a large volume of shares are borrowed and sold in the
hope they can be purchased later at a lower price.
The Financial Services Agency announced later in the day that the government
will ban naked short selling from Nov. 4 and legally mandate that short sellers
with a certain selling position report their transactions to bourses from
mid-November.
Naked short selling refers to transactions in which traders sell stocks without
borrowing them first.
The FSA said it will revise relevant ordinances right away to implement the two
measures, which will be effective until March 31 next year.
The agency also requested the Japan Securities Dealers Association later Monday
to reassure company employees that investments in their own company shares
worth less than 1 million yen do not constitute insider trading.
Nakagawa also said that Aso told the government to consider increasing the
scale of state-backed bank recapitalizations from the current 2 trillion yen
stipulated in a bill to revise the law to inject public funds into faltering
financial institutions.
The bill was submitted to the Diet on Friday as the application period for
public fund injections under the original law, which came into force in August
2004, expired in March this year.
The government is considering increasing the scale of public fund injections
from the planned 2 trillion yen to 10 trillion yen, government sources said.
The premier has also proposed relaxing capital adequacy requirements for banks
operating in Japan, easing mark-to-market accounting rules and extending and
boosting preferential tax treatment for stock investors, according to Nakagawa.
The market stabilization steps will also include a plan to have the Banks'
Shareholdings Purchase Corp., a public institution set up in 2002, purchase
shares held by banks to minimize the damage to their capital bases from
swelling latent losses in stockholdings, the finance minister said.
Nakagawa told the news conference that he expects the Bank of Japan will resume
its purchases of shares held by banks.
The bank shareholdings purchase institution had bought around 1.6 trillion yen
worth of shares by 2006, while the BOJ purchased 2 trillion yen worth of shares
from banks from 2002 to 2004.
==Kyodo