TOKYO — The surge in prices on the Tokyo Stock Exchange on Tuesday followed prodding by the Finance Ministry, which told major Japanese institutional investors that it was "not desirable" for prices to continue to fall in a chain reaction on the world's stock markets and asked for their "cooperation."
The institutional investors were reported to have replied that they would buy within the limits of their operational funds if foreign exchange rates remain stable.
Tokyo brokers said news that the ministry on Monday afternoon and Tuesday morning had asked life insurance companies, trust banks and managers of trust funds to start buying helped to lift the market. The Nikkei average of 225 selected stocks, which fell 1,096.22 points Monday, rose 632.40 points Tuesday to end at 22,834.96, for its third-largest single-day gain ever. At the end of the morning session today, the average was up 97.44 points to 22,932.40.
Kenichi Tato, director of the stock division of Nihon Life Insurance Co., confirmed in a television interview that the Finance Ministry had intervened.
Buying by the Japanese institutions reversed a down trend, caused by foreigners' sales, that had characterized the opening of stock trading.
Reversed a Trend
Yukio Hosoi, president of the Daiwa Investment Trust, said he did not regard Tuesday's gain as a sign of new stability.
"After a great earthquake, aftershocks occur many times before the earth firms up again," he said. "It's still too early to relax."
Although price-to-earnings ratios of 70:1 in Tokyo were far above the 20:1 average in New York before the worldwide turmoil began, stock prices here suffered less of a loss, in percentage terms, than any other major exchange.
The Tokyo exchange lost less than half of Wall Street's 34% decline from its Aug. 25 peak.
Brokers blamed New York's bigger overall plunge in part on computer-programmed trading of shares, a practice not permitted in Tokyo.
Calm Reaction Sought
The Tokyo exchange's limit on daily increases and declines--set at about 20%--also helped brake the record fall on Oct. 20. Of the 1,100 stocks listed on the first section of the Tokyo Stock Exchange, 596 reached the limit permitted for a decline that day, while 157 others did not. No transactions at all were conducted in the shares of 347 firms that day.
A spokesman for Nomura Securities Co. confirmed that the Finance Ministry had asked financial institutions to "react calmly" after the record plunge of Oct. 20. He refused to elaborate on the effect of that request, but other brokers reported that institutional investors dramatically curtailed daily transactions to about 40% of normal levels.
Selling by foreign institutions and individual Japanese investors was blamed for the Oct. 20 plunge and the roller-coaster performance of the market as it mimicked New York until Tuesday.
Japanese investors' tenacity in holding on to mutual funds also was cited as a factor holding down the plunge in Tokyo. Only 3% of the value of mutual funds is sold in an average month here, and brokers reported no change in the past week.
The largest factor, analysts agreed, was the huge supply of excess cash in the hands of investors, with no other potentially lucrative form of investment available. Individual Japanese investors are now estimated to control some 640 trillion yen ($4.6 trillion) in financial assets.
Liquidity in Japan was rated far greater than in any other country.
Nonetheless, the Oct. 20 loss of 57 trillion yen ($407 billion) in overall market capitalization amounted to more than an entire year of Japan's exports to the United States. Fluctuations since then, including both the market's second- and third-largest daily declines and its third-largest gain, have also been wild.
Japanese leaders, meanwhile, unleashed a rare public outburst of criticism of the United States, blaming the American budget deficit and accompanying worries about the future of the U.S. economy as the fundamental cause of the worldwide plunge in share prices.
Finance Minister Kiichi Miyazawa said the fastest way to stabilize stock prices would be for President Reagan and leaders of Congress to agree on how to reduce the U.S. budget deficit.
Masaharu Gotoda, who as chief cabinet secretary is Prime Minister Yasuhiro Nakasone's right-hand man, lashed out at Reagan's economic policies.
Assessing the Blame
"Is Reaganomics going well?" Gotoda said in a speech. "Not in the least! The theory was that if taxes were lowered, savings would increase, sustaining investment and increasing supply. As a result, the number of unemployed would decrease and the economy would be enlarged. But the result has been exactly the opposite."
Gotoda is in charge of coordinating the activities of all government ministries and agencies.
Kenichi Kamiya, president of the Mitsui Bank and head of the Japanese Federation of Bankers, accused the United States of "indulging in luxury beyond its means" by disbursing government money to the people through budget deficits.
"We must get the American people to practice perseverance through cutting the budget deficit to produce a deflationary effect," the usually tight-lipped banker said.
The outbursts contrasted dramatically with predictions made only a short while ago.
On Oct. 6, Izumi Mitsuishi, deputy manager of the investment management division of Yamaichi Securities, predicted in a column in the Japan Times that the 225-stock Nikkei average would possibly reach 32,000 by the end of the year, mainly because of the flood of surplus funds in Japan and continued low interest rates.