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With its stocks battered, Tokyo promises changes


TOKYO -- Struggling to master the art of massaging investor sentiment, Japan's new government reversed course yesterday and -- rather than leaving the depressed stock market to manage its own problems -- issued a flurry of promises designed to reinvigorate the nation's battered economy.

The sudden show of concern heartened investors, helping buoy share prices modestly after the steep plunge Monday. After tumbling nearly 4 percent in value on Monday, the 225-stock Nikkei index bounced nervously yesterday morning and then firmed up in the afternoon. The index gained 327.83 points, or 2 percent, to close at 16,406.54. Trading volume was a moderate 320 million shares.

But analysts insisted that words from the government would not be enough to support the market for long and that investors would be waiting for clear signs that Prime Minister Morihiro Hosokawa had a workable plan for pulling the economy out of its deep recession.

The Cabinet held an emergency meeting yesterday morning to discuss the economy. Afterward, ministers sounded as if they were reading from a script written by stock brokers.

Almost all officials involved in economic affairs abandoned the reserve shown earlier and insisted that they were aware of the depth of the economy's problems and that they would take measures to give it new life.

"I am very concerned about the market's movements," Mr. Hosokawa said yesterday. "It is imperative to take all possible pump-priming measures."

Finance Minister Hirohisa Fujii said he was watching the markets with "utmost attention." He was reported to have agreed with Hiroshi Kumagai, the minister for international trade and industry, to ease restrictions on land transactions to give that depressed market a lift. The central bank governor, Yasushi Mieno, said he was following the situation closely.

Mr. Hosokawa then told the Parliament in the afternoon that he was prepared to reduce income taxes next year to boost consumer demand, one of the weakest sectors of the economy.

"Yesterday, the government disappointed everyone because they did not seem concerned," said Yuichi Matsushita, stock market strategist at Nikko Securities. "Today, they seemed to realize that they have to do something. Lip service lasts just a day or two, though. They're going to have to do something substantive."

The problem for Mr. Hosokawa, who took office in August as head of a frail seven-party coalition of conservatives and socialists, is that the stock market upheaval -- over the past two months, the market has lost more than 20 percent of its value -- comes as a distraction from his key policy aim. He promised to resign if he did not pass laws to clean up the scandal-tainted electoral system by the end of the year.

Thus, he is in a race against the calendar to push through political reform legislation. Economic issues have not been a priority, and it is not clear that Mr. Hosokawa really has a well-thought-out plan to brighten the gloom.

The depth of the economy's problems were clear yesterday in two important reports. The government announced that unemployment, a sensitive issue in Japan, rose to 2.7 percent, the highest level in nearly six years.

That is low by Western standards, but it represents a threat in a country where workers have grown used to secure jobs and lifetime employment.

In addition, the government said that industrial production fell 5.1 percent in October from the previous month. That was the steepest one-month decline in recent years.

Those figures underscore the depth of the challenge Mr. Hosokawa faces. Adding to his difficulties is the fact that his coalition agrees on political reform, but not much else.

For instance, more conservative members are staunchly opposed to big income-tax reductions -- which a growing number of economists say are essential -- out of a fear that they will increase the budget deficit.

But the socialists are in favor of measures that would put money in the pockets of consumers rather than big corporations for a change.

The stock market is acutely aware of these complexities, and that is one reason for the current gloom, analysts said.

"There were definitely signs today that the government had focused on the problem, and that helped," said Tim Hayashida, a market analyst at Merrill Lynch Japan. "But nothing they said was new. It was what a lot of people had been demanding. There's nothing concrete behind it yet."

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