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Japanese Stock Surge May Be Short-Lived

March 22, 2001|From Associated Press

Speculation among traders that the Japanese government bought shares to prop up the nation's slumping stock market caused the benchmark Nikkei-225 stock index to soar 7.5% on Wednesday--its seventh-largest percentage gain ever.

But it remains to be seen whether the surge was anything more than short-term euphoria, with even government officials acknowledging that the Japanese economy's feeble recovery has skidded to a halt.

Indeed, Japanese stocks fell in early trading Thursday, erasing earlier gains. NTT DoCoMo Inc. and drug makers including Takeda Chemical Industries Ltd. paced declines. The Nikkei fell 247.96 points, or 1.9%, to 12,855.98, after earlier rising as much as 1%. The broader Tokyo Stock Price index lost 1% to 1263.05.

The government said Friday that the mild recovery from the worst economic slowdown since World War II is stalling and admitted for the first time that Japan is in a state of deflation.

Faced with years of economic stagnation, Japan's government has stuck to a single-minded course of action--spend and spend--though it hasn't worked.

On Wednesday, it seemed that more dismal economic news was in store, as the Nikkei opened weaker on investor disappointment that the U.S. Federal Reserve decided Tuesday on a smaller-than-desired interest rate cut of half a percentage point.

But stocks quickly rebounded, rising throughout the day as talk swept the market that the Japanese government had stepped in to buy stock.

The Nikkei rose 912.97 points Wednesday to 13,103.94, moving away from a 16-year low.

The last time the index registered a bigger percentage gain was April 10, 1992, when it rose 7.55% to 17,850.66. It was also the index's best finish since Feb. 26, when it closed at 13,201.14.

The government often intervenes in the stock market to bolster share prices and limit securities losses at debt-ridden banks before the end of the fiscal year March 31. There is also concern that the stock market slump is hindering Japan's ability to recover from its decade-long slowdown.

The broader Topix index--which includes all issues listed on the market's first section--finished up 75.80 points, or 6.3%, at 1,275.41 Wednesday.

Wednesday was the first day of Tokyo trading since the central bank announced monetary measures Monday meant to lower interest rates back to near zero in an attempt to revive the world's second-largest economy. Tokyo financial markets were closed Tuesday for a national holiday.

Political and business leaders have been quick to point out that action must come quickly if the Bank of Japan's efforts are to have an effect.

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