HOW THE MIGHTY have fallen. The Nikkei-225 index of the Japanese stock market is still struggling at the 8,000 level where at the end of 1989 it stood in excess of 38,000. Four stories in our business section yesterday show how widely opinion can range on what happens next.
First, the perennial get it wrong crowd. Japan's Council on Economic and Fiscal Policy, a government body of course, is all at sea on what measures it can take to help the market along and, fortunately, has decided to do nothing, thanks to a prime minister and a financial services minister who would rather have it that way.
A blessing indeed. Among the proposals the council was considering was a measure to prevent the liquidation of equity holdings by corporate pension funds. This is guaranteed to destroy confidence in any financial market. You may buy but you may not sell? That idea may not actually stop the sellers from finding ways to sell but it will certainly stop the buyers from buying.
What the government of Japan still has to concede (it has never been one given to conceding unpleasant truths) is that most of the troubles facing its economy are the result of 50 years of misallocation of capital at government behest. Allocating yet more money and effort now to propping up financial asset prices is a classic example of throwing good money after bad.
All it has done is push central government debt in the past 10 years from 240 trillion yen (about HK$16.07 billion) to an astounding 661 trillion yen, yes, that is correct, 661,000,000,000,000 yen. As a proportion of gross domestic product this figure has risen from 49 per cent to 132 per cent. You certainly took action, you bureaucrats. Perhaps you might indeed consider stopping now.
Then we get the follow the herd crowd. A good rule of investment is that the only time the herd is all headed one way is when it is headed to the slaughterhouse.
Forex traders in Tokyo are nervous with the yen having strengthened this week to 116 against the US dollar and are puzzling whether or not to second guess the Bank of Japan and buy greenbacks now in anticipation of official dollar buying.
