Japan unveiled steps to stabilise its financial markets and said the government was on “heightened alert”, despite a surge in Tokyo share prices that mirrored global gains inspired by a chorus of international measures.

Tokyo’s Nikkei share average had surged more than 13 percent by mid-afternoon, setting its sights on the biggest one-day gain in its 58-year history — but still far short of covering the 24 percent loss suffered last week overall.

Among the steps announced before the stock market opened was a possible injection of public funds into regional banks that the government said would be aimed at enhancing smooth financing for smaller firms facing a possible credit crunch.

Finance Minister Shoichi Nakagawa said in a statement that Japan’s financial system was relatively stable and sufficient and safety nets were already in place.

But he added: “I will continue to monitor on a heightened alert the impact of the recent rapid fall in the stock markets on Japan’s financial sector and real economy.”

In a sign the global crisis was taking a toll, Japanese consumer confidence fell to a fresh record low in September from three months earlier on a seasonally adjusted basis, a government survey showed on Tuesday.

Nakagawa, who also holds the financial services portfolio, was set to meet bank executives on Wednesday to urge them not to scale down lending activities, the statement said.

The finance minister also said the government would consider a temporary freeze on the sale of government-held shares on the secondary market and it expected the Bank of Japan to take similar steps.

The government will also further deregulate share buy-backs by companies, consider expanding disclosure rules on short-selling of shares, and extend a safety net for life insurers beyond April 2009, the ministry said.

SHARES SURGE, CAUTION REMAINS

Economists said the steps were welcome insurance in case of further market mayhem.

“Japan has been saying all along that its banking system is healthier than that of the United States and Europe. But if stock prices fall further, that logic might come under doubt,” said Takahide Kiuchi, chief economist at Nomura Securities.

“As such, it’s important to take pre-emptive measures such as creating a safety net for regional banks, and the government did just that. It’s good the government is preparing for a worst-case scenario,” he said.

Speaking at a parliamentary panel later, Nakagawa welcomed the Nikkei’s rise but said the global crisis appeared to be affecting Japan’s financial sector and economy.

“I have been instructed by the prime minister to be ready for any contingency that could arise at any time,” he said.

The Nikkei was up 13.74 percent by mid-afternoon, encouraged by gains on Wall Street and in Europe and more than making up for Friday’s slide, which was its worst one-day loss since the 1987 stock market crash.

The rise compares with the 13.24 percent leap logged on Oct. 2, 1990, the benchmark’s biggest one-day gain since it began in 1950. The broader Topix was up 13.17 percent at 951.69, a more than 110 point gain.

The jump in Japanese share prices followed the biggest one-day gains ever in the Dow Jones industrial average and the S&P 500 index, both of which rose 11 percent on Monday. Wall Street recorded its worst week in history last week amid panic over collapsing banks and fears that major economies were headed towards recession.

“It’s not surprising that we have a technical rebound along with the European, the U.S. and Asian markets after Friday’s global selling climax,” said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments, adding that the jump is mainly due to short-covering rather than the inflow of new money.

But caution lingered.

“There’s a relief that banks probably wouldn’t go bankrupt thanks to money injection plans, but after some rebound, we will inevitably enter a phase to think about how that would actually impact the global economy,” Ogawa said.

Source: http://www.afxnews.com

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