Japan says it has agreement with U.S. for intervention in markets

Section:

8:30p ET Tuesday, March 19, 2003

Dear Friend of GATA and Gold:

Thanks to our friends who forwarded today the
Bloomberg dispatches appended here, which
suggest that the big difference between the
U.S. markets and European and Asian markets
is that the European and Asian governments
admit to manipulating their markets, while
the U.S. government uses intermediaries and
hides behind the shadowy Exchange
Stabilization Fund.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *

From Japan to Malaysia,
Asian Governments Try to Boost Markets

By Kate Linebaugh

HONG KONG, March 19 (Bloomberg) -- From Tokyo
to Kuala Lumpur, Asian governments are trying
to boost stock indexes sapped by concerns
about war and slowing global growth.
Investors say their efforts are too little,
and almost certainly too late.

Take South Korea, where the government added
$1.6 billion to money markets on Friday to
limit fallout from the nation's biggest
accounting scandal in four years. The
benchmark Kospi index rose for the first time
in eight days -- then slumped on Monday to a
17- month low.

It's much the same in Japan, where the
government is trying to limit short-selling
to lift the Nikkei 225 Stock average from
two-decade lows. Hong Kong's stock exchange
is considering a limit on the minimum spread
at which stocks can be bid and offered,
aiming to win back investors as the Hang Seng
Index fell to its lowest since October 1998
on March 13.

"It is difficult for these type of policies
to stem the tide," said Will Malcolm, who
helps manage $2.5 billion at Standard Life
Investments in Hong Kong. "I don't think,
taken in isolation, that this is going to
change the huge amounts of fear and concern
that continue to affect equity markets."

Investors are concerned about war in Iraq,
North Korean missile tests and slowing
economic growth in the U.S., the biggest
market for Asia's exports. Some say any
market incentives adopted now won't stem the
selling.

The MSCI Asia Free Index, comprised of 778
stocks from around the region, closed at a
record low on Monday and has fallen 7.7
percent this year.

With 265,000 U.S. and U.K. forces massed on
the Iraqi border and U.S. President George W.
Bush giving Iraqi President Saddam Hussein 48
hours to leave the country or face an
invasion, investors are bracing for a war
that would boost oil prices, slow economic
growth and delay the profit growth needed for
a market rebound.

`Psychological'

That hasn't stopped governments from using
regulations to try to prop up their markets.

In January, Malaysia established a 10 billion
ringgit ($2.6 billion) fund to buy
government-linked stocks. The Kuala Lumpur
Composite Index has fallen 7 percent from
this year's high on Jan. 21. The government
said last week it would cut the cost of stock
trading and ease share-sale rules to lift the
market. Shares fell the day that plan was
announced.

"I am a bit cynical," said Pieter van Putten,
chief executive officer of Morley Fund
Management (Singapore) Ltd., which manages
$3.1 billion in Asia, excluding Japan.
"Government support programs tend to have a
short-term effect on markets and are often
nothing more than psychological. Then it
tends to fade away very quickly."

Philippines, Japan

In the Philippines, where stock-market
trading has fallen by four-fifths and the
benchmark index has lost a third of its value
in the last two years, the stock exchange
last week announced plans to ease rules on
public share sales. Yesterday, it delayed
reinstating a requirement that companies make
a minimum percentage of their shares
available for trading.

"There isn't much demand out there," said
Ernest Leung, president of the Philippine
stock exchange.

To curb the impact of a war in Iraq, Japan's
government may ask stock exchanges to narrow
the limit for daily share-price fluctuations,
Minister for Financial Services Heizo
Takenaka said yesterday.

A looming war isn't Japan's only motivation
for propping up markets. The government is
also trying to avert a crisis at the nation's
banks, which are saddled with about 52
trillion yen ($438.5 billion) in bad debt,
and stem a 12-year slide in the world's No. 2
economy.

The government will ask the central bank to
double the amount of shares it plans to buy
from lenders to 4 trillion yen, Hideyuki
Aizawa, a senior ruling-party official, said
yesterday.

March 31 Deadline

Policy makers aim to stem further share-price
declines before the March 31 fiscal year-end,
when lenders will be required to report their
shareholdings' current market value. Slumping
share prices would widen losses on the
roughly 21 trillion yen banks have invested
in shares, threatening to push their capital
below required levels.

Japan's Financial Services Agency also said
last week it would seek to limit short-
selling of shares and make it easier for
companies to buy back their own shares in an
effort to shore up markets.

South Korea's Kospi has fallen about 15
percent this year for its own reasons:
mounting tensions with North Korea, concern
about rising credit-card defaults and the
nation's worst accounting scandal in four
years. The index pared its losses yesterday,
gaining 4.3 percent on optimism a war in Iraq
will be short.

Tax Breaks

On top of the $1.6 billion it injected into
the market last week, Korea's government said
it planned more tax breaks to attract
institutional investors to the stock market.
President Roh Moo Hyun also proposed measures
allowing banks and insurance companies to
invest more heavily in stocks.

Some investors say such measures haven't been
enough to draw them back into the region's
stock markets.

"These events are positive, but I don't think
they're going to cause the international or
domestic fund manager to suddenly say, `Oh
the world is fine, let's start buying
equities,'" said Standard Life's Malcolm.

* * *

BOE's Large Says Authorities
Discussing Stock Slump

LONDON, March 13 (Bloomberg) -- Bank of
England Deputy Governor Sir Andrew Large,
who's in charge of financial stability, said
the central bank is discussing the stock
market slump with financial authorities in
the U.K. and the world.

"Major moves in all assets can be an issue,"
Large told reporters at a conference
organized by the British Bankers'
Association in London. "There is pretty
constant dialogue between all the different
authorities at a time like this, when you've
got significant fluctuations that everybody
can see."

Stock markets have fallen on concerns a war
in Iraq may interrupt oil supplies and curb
business investment. The FTSE 100 Index of
U.K. stocks yesterday plunged to a 7 1/2-year
low, posting its biggest one-day drop in
eight months. It's fallen 12 percent this
year while Germany's DAX Index is down 20
percent. The Standard & Poor's 500 Index in
the U.S. has shed 7.2 percent.

"What Large was saying is that these things
aren't being ignored; if we do get a problem
we have a plan in the works, but we're not at
that stage yet," said Tom Vosa, a former Bank
of England economist now at National
Australia Bank Ltd. "Central banks talk to
each other on a regular basis. That doesn't
necessarily mean they're creating policy
together."

The Bank of England, the U.K. Treasury, and
the Financial Services Authority regularly
hold talks about the latest developments and
have inter-locking committees.

"You would expect there to be discussions
between financial authorities under the
tripartite arrangements of the Treasury, the
Bank of England, and the FSA at times of
market volatility," said Robin Gordon-Walker,
a spokesman for the FSA.

'Global Phenomenon'

German Bundesbank board member Edgar Meister
this week presented a "memorandum of
understanding" among European central banks
and regulators that sets out guidelines for
the appropriate reaction to a crisis such as
war that might threaten the financial
system.

"No country can insulate itself from
international events," Ruth Kelly, financial
secretary at the U.K. Treasury who helps
oversee banking, financial services, and
insurance, said today. The slide in stock
markets "clearly is a global phenomenon," she
said.

In Japan, Prime Minister Junichiro Koizumi,
seeking to stem a stock market slide that he
said may cause a "financial crisis," is
asking the Bank of Japan to increase
purchases of shares from banks such as
Sumitomo Mitsui Financial Group Inc.

An 80 percent plunge in the Nikkei 225 Stock
Average since 1989 has eroded the capital of
Japan's banks, which own more than $178
billion of shares, to near the international
minimum to stay in business. The decline in
capital has curbed lending, crimping growth
in the world's second-largest economy and
contributing to three recessions in a decade.

Buying Time

"They are buying some time," said Edwin
Merner, president of Atlantis Investment
Research Corp. in Tokyo, which manages $600
million. "The crisis continues and will get
worse."

In Britain, the FSA last month eased solvency
rules that had forced insurers to sell
shares. The U.K. financial regulator wants
to reduce pressure on insurers to sell stocks
to shore up their reserves as markets tumble.

At today's banking conference, Large also
said British lenders' accounts are
"deficient" because banks are increasingly
using derivatives -- contracts pegged to
price changes in underlying assets or indexes
-- to manage risk.