Japan Market Rallies on Pay Cut News : Securities: The nation’s finance minister announced his offer to reduce his pay in the wake of the growing brokerage scandal.

Japanese Finance Minister Ryutaro Hashimoto’s decision to cut his salary temporarily appears to have been an effort to put the growing brokerage scandal to rest.

Brokers said the stock market rallied Wednesday after Hashimoto announced the three-month, 10% cut in his $10,000-a-month salary because investors viewed the minister’s apology as a “wrap-up” of the scandal.

However, recent events suggest that the controversy is far from being over and that the Ministry may be making a clumsy attempt to control the flow of information about the scandal.

Japan’s large brokerage houses--Nomura Securities, Nikko Securities, Yamaichi Securities and Daiwa Securities--have admitted that they paid $863 million between 1988 and 1990 to compensate big investors for stock market losses--in effect, discriminating against smaller customers. The Big Four were also found to have been working with gangsters.

The latest issue of Themis, a slick, sensationalist weekly, was to have come out Wednesday with a “scoop” implying--with skimpy evidence--that there had been a Ministry cover-up of the securities companies’ misdeeds.

The already delivered copies of the issue were pulled back Tuesday after complaints from the Ministry of Finance’s Tax Administration--complaints that publishing sources called highly unusual. Themis Editor Toshio Itoh said that he is confident of the article’s accuracy but that he and his publisher agreed to pull the magazine because of fears of a government lawsuit. He said the magazine is unlikely to publish again for three to six months, if at all.

The Themis story said the information about the brokerage pay-backs was deliberately leaked because of the ascendancy of a new director general of Tax Administration bent on being more aggressive in tax collection. The article said the previous director had closer ties to the securities industry and did not aggressively pursue the misdeeds.

A Tax Administration spokesman said Wednesday that it was unlikely that the release of the securities-industry information had anything to do with the new director.

But the article must have generated additional discomfort for the Ministry of Finance’s securities division, which has been accused in recent weeks of being too close to the brokerage houses to be capable of properly regulating them.

When the practice of compensating customer losses first became public in 1989, the Ministry of Finance issued an ordinance calling on the companies to end the practice. The ministry, however, apparently never followed up with a thorough investigation.

“Unfortunately, the measures taken were insufficient,” Vice Minister of Finance Makoto Utsumi told foreign reporters Wednesday. Utsumi said Japanese laws were too vague to enable the Ministry to properly carry out its regulatory duties. He added that the agency would “review the legal situation” based on recent events.

Themis’ article argued that under the leadership of Masahiko Kadotani, a former head of the Ministry’s securities bureau, little was done to crack down on the pay-back schemes. Nine days after Kadotani was replaced by Mamoru Ozaki, former head of the Ministry’s Tax Collection Agency, information about a tax investigation of Nomura and Nikko was leaked to the press.

The article implied that Ozaki, known in the tax office as Devil Head because of his aggressiveness in tax collection, arranged a leak to pressure the securities companies that were trying to write off the cost of compensating customer losses.

Themis’ story, thin on detail, apparently annoyed the Tax Administration enough that it took the unusual step of complaining directly to the magazine’s editor.

Itoh, Themis’ editor, said that the morning after he had a midnight call from a tax official complaining about the article, executives at his parent company, Gakushu Kenkyusha, told him that the magazines would stop publishing for an indefinite period. Itoh said the company, which publishes textbooks for the government’s Ministry of Education as well as magazines for school teachers, was worried about its reputation and about potential lawsuits.

A Tax Administration spokesman said the agency merely called the Themis editor to make sure the article was accurate. He denied that it applied pressure.

Some observers suggested that Themis, which claimed a circulation of 240,000 after two years in operation, had not been doing well and its publisher may have seen the Tax Administration complaint as an excuse to close the weekly down.

Even so, editors expressed shock at the government’s action. “It is very unusual to get complaints from the government,” said Mitsuko Shimomura, editor of Asahi Journal.