TSE hits lowest level in 7 months

Trading on the Tokyo Stock Exchange is hovering at its lowest level in nearly seven months--which some say reflects concern in the new government's ability to steer the economy.

The sluggish performance is in sharp contrast with overseas markets, which have rebounded one after another to their highest levels this year.

Analysts blame the anemic domestic performance on investor wariness of policies promoted by Prime Minister Yukio Hatoyama's Democratic Party of Japan amid a strong yen and moves by major companies to raise capital by issuing a rush of new shares.

On Thursday, the Tokyo Stock Exchange's TOPIX of all First Section issues fell 12.35 points from the previous day to close at 837.71, its lowest level since April 28.

The Nikkei 225 index closed at 9,549.47, down 127.33 points from Wednesday's close, the lowest level in four months since July 17.

In contrast, the New York Stock Exchange's Dow Jones Industrial Average reached its highest levels this year for two days in a row earlier this week.

Other major bourses, including London and Hong Kong, have also marked record highs this year.

Market watchers noted that the Tokyo bourse had kept pace with the NYSE until a little over a month ago, suggesting uncertainty persists in relation to the new administration's policies.

According to Nobuhiko Kuramochi of Mizuho Securities Co., some proposals pitched by the DPJ, such as a child support allowance and the second supplementary budget, could help improve the economy, but "the final outcome is unclear, and that has led to a reluctance in the market to buy."

He said investors based in Japan and overseas were pulling their money out of the Japanese markets and investing in rising economies, such as China.

In a news conference Wednesday, Toshio Ando, chairman of the Japan Securities Dealers Association, pointed the finger at the Hatoyama administration for "placing too much emphasis on slashing wasteful spending, while not addressing the importance of economic growth."

Remarks by Cabinet ministers--such as transport minister Seiji Maehara's suggestion Wednesday that the government could dissolve cash-strapped Japan Airlines Corp.--haven't helped.

The JAL share price "plummeted instantly," according to an official at one major securities company.

Meanwhile, others say the Hatoyama government is not solely to blame for the nation's stock market woes.

Large companies, reeling from the effects of last year's global financial crisis and the recession that followed, have created a glut of shares on the market by rushing to issue new stocks in an attempt to inject capital to improve their finances.

According to financial data company I-N Information Systems Ltd., public stock offerings this year have already topped 3.2 trillion yen, the highest amount since the company began collecting data in 1991. The figure is about double the previous record posted in 2006.

The banking sector, which is desperate to raise capital, has seen its shares on the TSE shed 25 percent of their value since peaking in June.

The strong yen, which has been trading around 89 yen to the dollar, is another factor.

While high-technology companies, automakers and other related companies' shares are making gains in overseas markets, many have yet to reap similar benefits at home.

Investors say this is due to fears the yen will further appreciate against the U.S. dollar, causing exports to drop.(IHT/Asahi: November 20,2009)