Japan May Buy Shares From Banks to Stem Stock Fall, Nikkei Says

By Kathleen Chu

Oct. 25 (Bloomberg) -- Japan's government may buy shares held by the nation's banks to help stabilize financial markets, the Nikkei newspaper reported today, after the domestic benchmark index fell to a five year low.

Global stock markets have lost more than $10 trillion of value this month, almost a third of the total worth of equities, amid growing concern central bankers and finance officials won't be able to stem the erosion of corporate earnings and job losses. Japan's Nikkei 225 Stock Average slid 9.6 percent yesterday to within less than a percentage point of its lowest since 1982.

Fallout from the financial turmoil will prompt Bank of Japan Governor Masaaki Shirakawa and his colleagues to cut their growth forecasts in a twice-yearly outlook on Oct. 31, economists say.

Speculation is growing the central bank will cut interest rates on concern the world's second-largest economy will suffer a prolonged recession. The government this week acknowledged Japan has probably entered its first recession in six years after the economy shrank in the second quarter and factory output, machine orders and household spending fell in August.

Japanese lawmakers may next week consider reviving laws used to prop up bank capital and purchase almost 2 trillion yen ($21 billion) of shares from lenders between 2002 and 2006, Nikkei reported today, without saying where it obtained the information. The government earlier this month said it would stop selling those shares as part of a package of market-support measures.

The Nikkei 225, which closed yesterday at 7,649.08, may plunge as low as 5,000, Nikkei reported today, citing analysts.

`No' to Norinchukin

The nation's largest banks will be eligible for public funds once the government revives a bailout law authorizing injections of public funds into banks that need additional capital, Economic and Fiscal Policy Minister Kaoru Yosano said on Oct. 21.

Japanese opposition parties, led by the Democratic Party of Japan, may oppose any assistance to Norinchukin Bank on the grounds it isn't properly filling its role as the central bank for farm and fishery cooperatives, Nikkei said today. Less than 10 percent of the bank's lending goes to small companies, and the Democratic Party says that should preclude it from receiving funds meant to help banks support local businesses, Nikkei said.

Additional measures the government may take to soothe the markets include stricter rules on stock trading, more flexible regulations on fair-value accounting and changes to the capital requirements on banks, Nikkei English News said today. Japan may announce emergency measures to cope with the financial crisis as early as next week, the report said.

What to Do

Asian and European Union leaders today urged an overhaul of global financial regulation, pledging to ``undertake effective and comprehensive reform of the international monetary and financial systems,'' following a two-day meeting in Beijing.

Leaders from around the world will gather in Washington on Nov. 15 to assess the turmoil at the urging of the EU, which has called for stricter bank supervision and regulation of hedge funds, new rules for credit-rating companies and changes at the International Monetary Fund.

The U.S. has said it will invest $250 billion in its banks and urged lenders to use the funds to spur economic growth. The injection came after France, Germany, Spain, the Netherlands and Austria pledged 1.3 trillion euros ($1.6 trillion) to guarantee bank loans and take stakes in lenders.

MSCI's index of developed and emerging stock markets is heading for its worst year on record, down 48 percent already in 2008 as credit-related losses topped $660 billion.

To contact the reporter on this story: Kathleen Chu in Tokyo at kchu2@bloomberg.net.