13 March 2009

Japan's Government considers Stock-Buying Plan

Japan's ruling party will discuss spending public funds on shares of Japanese banks and other companies hit by the market's sell-off, a newspaper report says. Finance Minister Kaoru Yosano said discussion will be held next week. 

The Prime Minister's ruling party will discuss spending public funds on shares of Japanese banks and other companies hit by the market's sell-off, a newspaper report in Businessweek says. 

 

Finance Minister Kaoru Yosano told reporters that the Liberal Democratic Party next week will discuss the details of a plan to spend public funds on shares owned by banks and other companies.

 

If the government acts, it would be betting that a stock-buying scheme will help banks and companies whose finances have been eroded by the market's sell-off. Most Japanese banks and companies will be closing their books at the Mar. 31 end of the fiscal year. In some cases, banks might use the extra cash to lend out to businesses. 

 

On Mar. 9, the Keidanren business lobby proposed that the government not pick specific blue chip shares. Instead the group aims to give a boost to as many stocks as possible. A government corporation could invest in exchange-traded funds (ETFs), or baskets of stocks that track market indexes.

 

To pay for the purchases, the government corporation would issue guaranteed bonds that can be converted into the ETFs later. Some worry that too much government involvement could hurt Tokyo's status as a financial center, scaring off global investors.

 

The government would get more bang for its yen if it were to combine stock-buying with a dramatic increase in stimulus spending, says Waseda University finance professor Jun Uno. So far, Parliament has approved two stimulus packages totaling $66 billion, including $20 billion of cash payments to individuals. The government and central bank have set aside another $330 billion of public funds for shoring up banks' capital. But Uno says those measures are far from sufficient and suggests yet more stimulus.

 

On Mar. 13, Prime Minister Aso called for a third package of public spending and tax cuts, warning lawmakers that inaction could bring more economic misery. 

 

By Kenji Hall

Full BusinessWeek article

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