Japan unveils stock buyback plan

Investors stayed on the sidelines to await the announcement. Story Tools

TOKYO, Japan (Reuters) -- Japan has announced plans to make it easier for companies to buy back their own shares and said it would discourage short-selling as part of an emergency package to shore up crumbling stock market confidence.

The package had largely been leaked to media a day earlier, receiving a skeptical response from analysts and investors who said it did little address the market's main problems -- a weak economy, looming war in Iraq and financial firms' shaky health.

The measures, coming after Tokyo's main Nikkei stock average fell to 20-year lows this week, include a request to the securities industry to set voluntary rules on stock lending -- a practice usually associated with short-selling of stocks.

Asked whether the measures were in response to recent sharp falls in stock prices, an FSA official told reporters:

"These measures are not intended to affect stock prices. They are measures to guide the market to function appropriately."

Shortly before the FSA announcement, top government spokesman Yasuo Fukuda raised the pressure on the Bank of Japan by calling on it to consider implementing effective monetary policy, including an extension of steps it has already taken.

Fukuda, chief cabinet secretary, also said in a statement that the country's financial system was not at risk of immediate disruption and added that Japan would cooperate with other countries in dealing with the global fall in share prices.

The FSA said it would ask institutions to consider market conditions before selling shares -- an apparent move to persuade bank and life insurer management to hold back on share sales.

It will ask Japanese stock exchanges and the government's Securities and Exchange Surveillance Commission to beef up market surveillance in a move it said was designed to increase investor confidence.

Too late

Of the expected steps, about the only one to receive a positive response from market players was deregulation of company share buybacks, although they said it could be too late to have much effect before the March 31 fiscal year-end.

Fund managers and analysts said most of the steps follow a familiar pattern in recent years in which the government has attempted to engineer a short-term boost in share prices to avoid a fiscal year-end crisis while leaving deeper problems untouched.

"Our expectations were low and the announcement came just as expected," said Yusuke Sakai, equities manager at Mizuho Securities.

The Tokyo stock market's Nikkei average has dived to 20-year lows, leaving banks with huge losses on stock holdings that they will have to own up to on March 31, possibly leaving their capital short of international standards.

In the run-up to last year's fiscal year-end, authorities succeeded in driving up the Nikkei by tightening rules against short-selling.

Different conditions

That helped drive the average to a peak of around 12,000 in early June. Since then it has fallen relentlessly, closing at 7,868.56 on Thursday, down 0.94 percent on the day.

"The steps included a call for better risk management on proprietary trading that is a heads-up for us dealers, I guess, since we are often involved in short selling," said Sakai.

"But since last year's price regulation (on short selling), we have been very careful, not aggressive at all."

Short-selling involves selling a stock, usually borrowed, in the hope of buying it back later at a lower price to profit on the difference.

Analysts said it would not be as easy for authorities to create a stock market bounce this time because their were nowhere near as many short positions built up in the market.

"The conditions are totally different from last year when short positions (with borrowed stocks) were piled up before the fiscal year-end," said Toyomi Kusano, director at Credit Agricole.

Unlike last year, the main sellers are not short-sellers but banks and insurers trying to offload their massive shareholdings, analysts said.

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