Japan’s Nikkei Fails to Reach Government’s Goal

The stock market here ended the fiscal year far short of the government’s unofficial target Tuesday, disappointing policymakers and threatening a new downward spiral for Japan’s economy.

By midday today the disappointment was palpable, as stocks tumbled again and the yen hovered near six-year lows.

For weeks, top officials of the ruling Liberal Democratic Party declared they wanted the Nikkei-225 stock index to end the 1997 fiscal year above the 18,000 level, equal to last year’s close. That would have left banks and other companies with stronger balance sheets for their end-of-year accounts, which could in turn carry over to easier bank lending to stimulate growth.

Instead, the Nikkei index closed Tuesday at 16,527.17, despite a series of high-profile government measures in recent weeks aimed at inflating stock prices. They included $354 billion in economic stimulus programs and the pouring of money into stocks from government-controlled postal savings, pension and insurance funds.

Some investors, however, said such purchases appeared to be much less than the maximum figure of up to $10 billion earlier floated by government officials.

Ruling party politicians “must be feeling disappointed,” said Hiroshi Yamamura, chief economist of NLI Research Institute. “But . . . this kind of ‘price-keeping operation’ is an unhealthy method that exists only in Japan. It does not change the quality of the banks or their business results, but some people are still fixated on the idea.”

At midday today, the Nikkei was down 258.14 points, or 1.6%, to 16,268.83. The yen was at 133 to the dollar, near a six-year low.

Japanese banks hold large quantities of stock, which they are allowed to count toward their capital. The idea behind boosting the Nikkei was to boost banks’ capital at the end of the fiscal year, thus encouraging them to lend more money.

Tuesday’s finish at the mid-16,000 level is not high enough to rev up the economy, but not low enough to pose the threat of a financial crisis, analysts said. Its main effect is to add yet another drag on the effort to trigger a self-sustaining recovery.

“In terms of sentiment, it, of course, means a lot: It’s one more piece of bad news,” said Ron Bevacqua, an economist at Merrill Lynch Japan.

Jesper Koll, a J.P. Morgan analyst, said the government’s failure to reach its Nikkei goal could help in the long run because it “exposes the impotence of policymakers and the victory of market capitalism.”

Etsuko Kawase of The Times’ Tokyo bureau contributed to this report.

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Falling Short

Japan’s elaborate effort to push the Nikkei-225 stock index to 18,000 by Tuesday’s fiscal-year close was a failure. The ruling party had hoped to increase the value of Japan’s banks’ assets so the banks could make more loans and boost the country’s laggard economy. The Nikkei, weekly closes and latest:

Sept. 5: 18,650.17

Tuesday: 16,527.17

Source: Bloomberg News