It's show time as the BOJ trots out their last line of defense -
Tokyo's Nikkei ends well above lows, helped by BOJ
Reuters Market News
Wednesday September 18, 3:58 am ET
By David McMahon
TOKYO, Sept 18 (Reuters) - Tokyo's Nikkei average bounced dramatically in late trade on Wednesday, erasing much of an earlier big fall after the Bank of Japan said it would take the unprecedented step of buying shares directly from banks.
Details of the plan were unclear, but BOJ Governor Masaru Hayami told a news conference: "We would want to start buying as soon as possible...but the time frame would be strictly limited."
Japan's banks have huge shareholdings on their books, which they are aiming to cut in order to reduce their vulnerability to market fluctuations.
"This is a big surprise. It shows the BOJ has a real sense of crisis about the state of the economy," said Norihiro Fujito, senior investment strategist at Mitsubishi Securities.
"This would certainly be a big plus for stocks."
The benchmark Nikkei average (^N225 - News) closed down 0.75 percent or 71.88 points at 9,472.06, staging a dramatic turnaround in the last 10 minutes of trade after being down three percent.
The Nikkei had been dragged down by a tumble in U.S. stocks and persistent concerns about a war over Iraq.
The capital-weighted TOPIX index ended 0.5 percent down at 927.79, after falling as low as 908.90.
"Last-minute buying was seen from arbitrage players given the dramatic fall in bond prices after the BOJ's announcement," said Hiroshi Nishiyama, senior portfolio manager at SG Yamaichi Asset Management.
The announcement sent a shock wave through the Japanese government bond (JGB) market, pushing up the key 10-year yield by 20 basis points and slamming key futures down by the day's limit.
The BOJ's surprising decision also came just over a week after Tokyo stocks fell to 19-year lows, and as fears of financial instability were growing in the world's second-largest economy.
Analysts said although the BOJ's gamble would likely place a floor under stock prices in the short term, sustainable gains in stocks would require the government to grab the baton and accelerate its flagging reform efforts.
"Now the ball is clearly in the government's court. This could be make or break for Koizumi. He will now finally have to deliver on policy promises to clean up bank bad debt," said Naomi Hasegawa, senior fixed income analyst at MMS International, Singapore.
A set of emergency economic steps centred on tax and bank reform is expected from the government as early as Thursday.
SG Yamaichi's Nishiyama said that without accompanying action by the government to solve the bad loan problem, the BOJ's solo act could backfire, triggering a landslide in the stock market because of damage to the central bank's credibility.
BANKS SOAR
The most spectacular rebounds after the announcement were by Japan's beleaguered banks, with the banking sector subindex (^IBNKS.T - News) ending up 1.65 percent after dropping as low as 2.8 percent earlier.
Mizuho Holdings Inc (Tokyo:8305.T - News), the world's largest banking group by assets, put on 2.88 percent to 250,000 yen after dropping by over six percent in earlier trade.
At current price levels the main banks are seen by analysts as carrying large losses on their shareholdings, increasing fears of financial instability ahead of half-year book closings on September 30.
"The BOJ's step will prompt the disposal of banks' shareholdings, thus pushing forward their effort to unload bad loans," said Mitsuhiro Nakano, strategist at Daiwa Institute of Research.
TECHS WEAK
Earlier, the market's decline had been driven by heavy falls in telecom and tech issues.
Wireless giant NTT DoCoMo Inc (Tokyo:9437.T - News) hit a fresh 42-month low of 213,000 yen before clawing back losses to close down 1.77 percent at 222,000 yen. Traders said investor concerns about the firm's growth prospects were weighing on the stock.
Advantest Corp (Tokyo:6857.T - News), Japan's top maker of chip testing devices, slid 2.4 percent to 5,290 yen after Oracle Corp (NasdaqNM:ORCL - News), the world's second-biggest software company, said on Tuesday its first quarter profits were down on lacklustre corporate demand for software.
Advantest's plight underscored analysts' concerns that despite Wednesday's policy surprise from the BOJ, a bottoming out in the U.S. stock market was still needed for Tokyo to sustain any rally.
Decliners outnumbered gainers 951 to 360. Volume picked up, with 782.58 million shares changing hands on the first section of the Tokyo Stock Exchange, up from Tuesday's total of 725.14 million shares. ($1=122.08 yen) |
