Think of it as the "Nikkei 18,000" horse race.
With extraordinary bluntness, officials of Japan's ruling Liberal Democratic Party have openly and repeatedly declared that they want the Tokyo stock market's widely watched 225-share Nikkei index to finish above the 18,000 line next Tuesday, the final day of Japan's current fiscal year.
Taku Yamasaki, the ruling party's policy chief, said weeks ago that he would rack his brain to find ways to push the index to that level. As a reminder of the goal and a marker of progress toward it, the index's closing level each day is written on a board just outside his office.
The Nikkei has a long way to go to reach 18,000. It closed Tuesday at 16,606.39. Some ruling party officials have said that to achieve the goal, vast sums from government- controlled postal savings, pension and insurance systems--reportedly $10 billion worth--should be poured directly into stocks by next week.
The idea is to boost the value of the capital held by Japanese banks, thus encouraging them to lend more money and jump-start a languishing economy.
Such blatant manipulation of stock prices, however, doesn't look good even in Japan, where the government routinely interferes in the economy.
Sensitive to criticism, government officials have insisted in recent days--not very convincingly--that if government-controlled funds are put into stocks during the next few days, such steps should be viewed simply as wise investment decisions.
Finance Minister Hikaru Matsunaga put it this way at a Tuesday news conference: "It is necessary for the government to make it clear that it does not aim to manipulate stock prices when it injects public funds into the stock market."
A Nikkei fiscal-year finish slightly above 18,000 would match the index's 18,003 close of the previous year. Policymakers believe that would boost economic growth, thereby helping ease the Asian financial crisis and reduce trade tensions with the United States.
But the trick for Prime Minister Ryutaro Hashimoto's government is to achieve 18,000 without completely backtracking on his 1996 election pledges to put the nation's long-term finances into better order.
So the ruling party is walking a fine line between its earlier policies of keeping a tight limit on spending hikes and tax cuts, and the conflicting need to promise enough economic stimulus to rev up growth and encourage investors.
Policy pronouncements leaning in one direction or the other are whiplashing Tokyo stocks daily, as competing factions within the ruling party push their own policy prescriptions and the party as a whole keeps investors guessing.
"The actual economy is extremely bad, but all this talk is keeping stock prices at a certain level," said Harumi Ichiki, an analyst at Sumitomo Life Research Institute. "Investors are afraid to sell, in case something significant comes out."
The market theme of the day Tuesday was disappointment after a ruling party official said the party had decided against any major income tax cut in an economic stimulus package due to be announced later this week. That sent the Nikkei index down 262.44 points, or 1.56%, to 16,606.39.
But in early trading today, expectations of government stock purchases nudged the Nikkei up 68.14 points to 16,674.53.
Even these prices are a vast improvement over stock levels of mid-January, when the Nikkei index bottomed out at 14,546.25. Viewed from this perspective, the government has already achieved considerable success in boosting stock prices through a combination of policy steps and simply jabbering about the 18,000-point goal.
The index has been lifted by a series of policy announcements, including a scheme to bump up land values and the pumping of billions of dollars into the economy. The current stock level is being supported by expectations that the ruling party will announce this week an economic stimulus package valued at more than $77 billion.
The drive to lift stock prices is related to the massive bad loans in Japan's banking system and a credit crunch triggered in part by those loans.
Because the stocks held by Japanese banks are counted as part of their capital, the higher the Nikkei index, the stronger Japan's banks are on paper--and the more money they are allowed to lend.
Indeed, a difference of 1,000 points in the Nikkei index represents about $19 billion in the market value of stocks held by Japanese banks, Sumitomo analyst Ichiki said.
As of April 1, Japanese banks must meet tougher capital-adequacy standards. And many banks have been tightening up on lending in recent months in order to meet these requirements.
The new rules call for banks operating internationally to hold capital equal to at least 8% of outstanding loans, while domestic-only banks must have a 4% ratio. A rising stock market makes it easier for banks to meet those standards--and start loaning more money.
Etsuko Kawase of The Times' Tokyo bureau contributed to this report.
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Japan is pulling out all the stops to push the Nikkei stock index above 18,000 by next Tuesday, a step that would improve banks' finances and thus prompt them to lend more money. Monthly closes and latest:
Tuesday: 16,606.39 (--262.44)
Source: Bloomberg News