Coalition to combat Japan stock slump

Koizumi has told Takenaka (right) to speed up reform, with his cabinet's popularity dropping ahead of Sunday's vote

By CNN's Alex Frew McMillan in Hong Kong

TOKYO, Japan -- The party chiefs of Japan's ruling coalition plan to meet Wednesday to discuss ways to bolster Tokyo's sagging stock market.

Lawmakers from Prime Minister Junichiro Koizumi's dominant Liberal Democratic Party will meet with their allies from the New Komeito Party and the New Conservative Party, Japanese news agency Kyodo reported, quoting party sources.

The benchmark Nikkei index tanked to a 16-year low on Monday. That has spurred officials into action to try and revive it.

"I am very worried about the current trend in the stock market," Finance Minister Masajuro Shiokawa told reporters.

Koizumi cabinet's approval drops

Japan is heading into Upper House elections on Sunday, and the slump in its stocks is not helping the coalition's popularity.

Approval ratings for Koizumi's cabinet have come off April's record highs of 85 percent, slipping to 69 percent, according to the latest polls.

The Nikkei ended 2.4 percent higher Tuesday, up 273.62 points to 11,883.25. But Japan's leading index is off sharply this year, down 14 percent, and is one-third the value of its high of 1989.

Koizumi on Tuesday told Economics Minister Keizo Takenaka to push ahead with planned reforms.

Koizumi effect disappears

The prime minister also repeated his refrain that Japan's politicians shouldn't react to every small stock movement.

But this year's decline has been far from a small movement. The Nikkei's one sustained rally, the "Koizumi effect" after the radical lawmaker took office in April, has vanished, and the Nikkei is back at its March level.

Market watchers have been sorely disappointed with the pace of reforms -- the latest disappointment coming when talks with the leaders of the Group of Eight industrial nations led to no progress on Japan's bank reform.

Takenaka said last week that the government is mulling a number of ways to boost the stock market by encouraging people to invest, including by cutting taxes.

In fact, reforms to encourage investing will take top priority in Japan's reforms, he said.

Lawmakers are eyeing the $11.2 trillion (1,400 trillion yen) pool of assets that Japanese citizens hold. Most of it is left in banks or pension accounts rather than the stock market.

The LDP is considering dropping capital-gains taxes as low as 10 percent, from 26 percent now.

Reuters contributed to this report.