Nikkei surges on Tokyo moves to solve bank bad loan problems

PUBLISHED : Wednesday, 01 December, 1993, 12:00am
UPDATED : Wednesday, 01 December, 1993, 12:00am

TOKYO stocks rebounded strongly yesterday on reports that the Japanese Government was taking aim at the most serious obstacle to economic recovery: non-performing loans held by Japanese banks.

The Nikkei 225, which plummeted 647.66 points on Monday, rose 327.83 points or two per cent to end at 16,406.54. The broader TOPIX index of all shares on the Tokyo Stock Exchange's first section advanced 23.58 points or 1.75 per cent to 1,374.06.

Brokers said investors were encouraged in late trading by a reported agreement between Finance Minister Hirohisa Fujii and International Trade and Industry (MITI) Minister Hiroshi Kumagai to ease restrictions on land deals as a means to boost the saggingeconomy.

Banks hold huge amounts of devalued real estate as collateral on bad loans.

The loan burden has prevented banks from making new loans, which, in turn, has delayed economic recovery.

''This is really the first time that the new Government has made a statement about the banks' non-performing loans,'' said Shigeru Akiba, Tokyo branch manager at UBS Securities.

The two ministers were also said to have agreed to supply more funds to small and medium-sized companies which have been hit by the economic slump.

The news helped reverse the market's morning decline, triggered by Mr Fujii's remarks that the Japanese Government must not intervene to support falling share prices.

The Nikkei ended morning trade at the day's low of 16,004.

Despite the reported agreement by ministers on a stimulus package, fresh statistics yesterday showed the stock market could suffer more.

Japan's October unemployment rate rose to a 68-month high of a seasonally adjusted 2.7 per cent, or 1.76 million people, the Management and Co-ordination Agency said.

The jobs-to-applicants ratio fell to 0.67, the lowest since June 1987, meaning there were 67 vacancies for every 100 applicants.

And Japanese industrial production fell a seasonally adjusted 5.1 per cent month-on-month in October, according to MITI statistics.

Adding to the bleak outlook was a Construction Ministry report showing that orders received by Japan's 50 top construction firms fell year-on-year by 24.3 per cent in October to 1.2 trillion yen (about HK$84.7 billion).

In September, orders dropped a year-on-year 18.9 per cent to 2.36 trillion yen.

With statistics showing that the economy remain mired in difficulties, analysts said the direction of the stock market in the coming weeks depended heavily on how much more support government was willing to provide.

Traders said that unless it followed up yesterday's reports with details about land tax reform or other measures to help financial companies, the market would resume its decline in a matter of days.