March 16, 1999 Japan's Stocks Rise 1.9%,Destabilizing Yen Policy
By BILL SPINDLE
Staff Reporter of THE WALL STREET JOURNAL
TOKYO -- Tokyo's main stock index rose 1.9% to its highest level in seven months, but the buying by foreign investors that is propelling the rally may be undermining the government's recent attempts to bring stability to the country's exchange rate.
On Monday, the benchmark Nikkei 225 stock average closed at 15779.60, up 290.74 points, for the seventh rise in nine trading sessions. The sticking point: The rally, led by foreign-investor buying, helped weaken the dollar to as little as 117.95 yen from above 120 yen on Friday. The dollar finished trading in Tokyo at 118.40 yen.
Foreign investors have turned bullish on Japanese stocks since last month when the central bank loosened monetary policy, leading to hopes for an economic turnaround. Also cheering investors has been a string of companies, including Sony Corp., that have announced significant restructurings.
After selling many more stocks than they bought last year, foreign investors were the biggest buyers on Japanese exchanges between the end of February and the first week of this month, purchasing 622 billion yen more in shares than they sold. Although statistics for last week haven't been released, traders said overseas investors have kept up the shopping spree.
The rise in the stock market could give companies a break at the end of their fiscal year on March 31, when they record the value of their shareholdings. But it is also frustrating the government's plans for keeping the yen stable after it engineered the currency's descent beyond 120 yen.
"Foreigners are big stock buyers," said Marshall Gittler, a currency analyst with Bank of America, "and they have to buy the yen first."
Meanwhile, Japanese investors were net sellers of both foreign bonds and stocks for the first time in 10 months. They were net sellers of foreign stocks by 89.8 billion yen, and were net sellers of foreign bonds by 475.1 billion yen, the Finance Ministry said.
The currency weakened to more than 120 yen from 113 yen in February after the Bank of Japan, the central bank, began loosening monetary policy on Feb. 12. But recently government officials have said they want to keep the exchange rate stable during a key period when the economy is showing some signs of improvement. Authorities have declined to give a target range, but analysts and currency traders say the government would probably like to keep the yen between about 120 yen a dollar and 125 yen a dollar.
A yen stronger than that will eventually take a toll on the economy by cutting into exports of manufacturers and increasing the amount of imports, economists say. For the first time in three quarters, trade was a drag on the economy in the October-to-December quarter, according to figures released Friday. The yen appreciated sharply during the period. Fluctuations in the currency can also damp spending by consumers and companies by increasing a sense of crisis and unpredictability, economists say.
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