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Feud Erupts Over Japan Market Scandal : * Controversy: The finance minister denies that his agency OKd Nomura Securities Co.'s reimbursements to clients for investment losses.


TOKYO — Japan's stock market scandal took another surprising turn Friday as a public feud erupted between the powerful Ministry of Finance and the former head of the world's largest securities firm over the questions: What did the regulators know, and how much did they approve?

Ryutaro Hashimoto, the finance minister, emerged from a Cabinet meeting Friday morning and angrily condemned as "inaccurate" statements made by Yoshihisa Tabuchi, the former president of Nomura Securities Co., who had claimed that the ministry approved Nomura's payment of compensation to large customers for investment losses.

"I really resent the remarks," Hashimoto told reporters.

Even before Hashimoto's denunciation, Nomura was backing away from the former executive's statement.

But the spectacle dealt another jolt to Japan's financial establishment, which is not accustomed to witnessing an open quarrel between two such prominent figures.

The dispute also underscored the damage that has been inflicted on the reputation of the Finance Ministry, Tokyo's most elite and powerful agency, by last week's revelations that Nomura and Nikko Securities Co. had compensated their most valued customers for hundreds of millions of dollars in losses suffered in last year's market crash and made loans to mobsters.

Critics have been blasting the ministry's bureaucrats for being too cozy with the industries they regulate.

Hashimoto's anger highlighted the potential political ramifications of the scandal.

The finance minister is regarded as a leading candidate to succeed Prime Minister Toshiki Kaifu in October, and his star could be badly tarnished if evidence suggests that his ministry condoned Nomura's and Nikko's controversial practices.

The feud began on Thursday, when Tabuchi--who Monday said he would resign--presided over his last annual shareholders' meeting.

Although he voiced regret at having allowed Nomura's reputation to be sullied, Tabuchi defiantly maintained that Nomura had done nothing illegal, and he added: "We got clearance from the Finance Ministry" to make the controversial payments to big customers.

Tabuchi's statement echoed what many market experts have been saying here in recent days-that the Finance Ministry, given its extraordinary influence and intelligence-gathering capabilities, must have at least turned a blind eye to the securities firm's practice.

But the ministry was infuriated, and within hours, Nomura was scurrying to contain the damage. Thursday evening, Hideo Sakamaki, Nomura's new president, said Tabuchi's statement "was not appropriate."

Tabuchi, he suggested, was trying to protect Nomura's interests abroad by emphasizing that Nomura had violated no laws.

Technically, under Japanese law, a securities firm can make compensatory payments to clients provided no promises are made to do so.

But this wasn't enough to satisfy Hashimoto, whose aide strongly denied that the ministry had condoned the payments.

In December 1989, the ministry issued a directive advising against such payments, following revelations that Daiwa Securities Co. had engaged in the practice. But the directive didn't have the force of law.

In a demonstration of the ministry's power, the stock market fell sharply following additional remarks by Hashimoto on Friday afternoon.

The finance chief told a meeting of business leaders the ministry may restrict stock investments by government pension funds.

In reaction, the Nikkei stock index, which had risen in the morning, declined 252.07 points below Thursday's level, closing at 23,290.96.

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