One might think that Japan’s move on Tuesday to tighten short-selling discloser rules, encourage share buybacks and take other “market stabilisation” measures are a little out of synch with the rest of the world.
We see it more as a potent reminder that the huge sighs of relief emanating from markets around the world may well be way premature.
Tokyo’s move also speaks volumes about the depth of fear that last week’s plunge in Japan’s stock market - the steepest in its history, with the Nikkei 225 ending down 24 per cent - and Friday’s collapse of life insurer Yamato Seimei, touched off within the government.
It also draws attention to the curious fact that so far in this current crisis, Japan - certainly no stranger to the practice of government intervention - is one of the only big countries not to have seen official moves to prop up banks or markets. Now, on top of the market measures and a decision to halt sales of government shareholdings, Tokyo is also considering extending a safety net to life insurance companies to protect policyholders beyond its March 2009 deadline, according to Bloomberg.
With an election coming up at some point (date TBA), and in the wake of the weekend’s G7 finance ministers’ meeting in Washington, the government evidently decided it was time to be seen to be doing something - anything.
Shoichi Nakagawa, finance minister, said Japan’s financial sector remained “relatively stable” and had sufficient safety nets, but at the same time revealed government concerns about the impact of last week’s stock market rout and life-insurer collapse on the financial sector and real economy.
So even as the Nikkei 225 surged to a record one-day gain, rising 14.2 percent to 9,447.57 after Monday’s public holiday, Nakagawa announced the government would tighten short-selling restrictions including disclosure requirements, while loosening curbs on share buybacks.
Essentially, the government will require exchanges to disclose short-sales on individual stocks and industries on a daily basis as opposed to current requirements of monthly reports. The new buyback rules, effective until Dec 31, will scrap limits on the amount and timing of share purchases.
Japan already has short-selling restrictions, imposed in the early 2000s when it was dealing with its own financial crisis. The existing rules target the shares of all listed companies, not just financial institutions, and rules include requiring investors to verify and mark whether the transactions fall into the category of short selling or not, and an “uptick” rule that makes it harder to bet on downward movement in stocks.
At the same time, the government also said Tuesday it would curtail its practice of selling state-held shares in a variety of companies (mainly financial) - not an insignificant amount of shares given Japan’s massive share-buying programme which ran from the last financial crisis in 2002 through 2006.
The Bank of Japan held Y1,400bn ($13.7bn) of shares in Japanese companies as of the end of March, according to the central bank’s most recent financial statement, notes Bloomberg. The BoJ’s Shareholdings Purchase Corporation, controlled by the Ministry of Finance, held Y456.1bn in shares at the end of the same period. The government and central bank bought the stocks from banks between 2002 and 2006 to reduce cross-shareholdings between banks and their customers.
On top of all this, Tokyo also plans to help smooth out financing procedures for small- and medium-sized companies throughout the country by regional financial institutions. This last measure, according to some cynical analysts, may have little to do with the global credit crisis and everything to do with the ruling LDP’s increasingly desperate play for more votes in regional Japan.
On the whole, though, and even if they’re not saying it, the Japanese clearly think there might be some more nasty surprises in store.
And, one might think, after their homegrown experiences of financial crises, they may be a in position to know.
