International Markets: Tokyo: Rescue rumours boost stocks

Japanese stocks will probably rise this week if the government continues to work toward stabilising the financial sector following the failures this week of Yamaichi Securities and Tokuyo City Bank. Bonds are likely to be little changed as uncertainty deters investors from big bets.

"The market is starting to assume that public money will be used and that land taxes will be cut," said Martin Keeble, head of dealing at Schroders Japan. "If these packages become reality, the market can stay reasonably buoyant."

The benchmark Nikkei 225 stock average will probably trade between 16,000 and 17,000, Mr Keeble said. The benchmark fell 0.51 per cent last week to 16,636.

Bond investors and traders "are holding their breath waiting to see what will happen to short-term interest rates," said Akio Makabe, head of capital markets at Dai-ichi Kangyo Bank.

Last week the benchmark No 182 government bond yield fell one basis point to 1.72 per cent. Concern over banks' financial health has made it harder for them to raise cash, tightening lending in the market and making it more expensive.

Stock investors will probably continue to buy top exporters which are expected to see windfall profits from the yen's depreciation. The yen is trading near its five-year low, at around 127 to the dollar.

Car manufacturers as a group rose for four days as investors sought internationally competitive exporters likely to benefit from the yen's depreciation.

On Friday, Japanese stocks rose for a third day as investors bid up shares in banks and brokerages on expectation that the government will use public funds to stave off a financial industry meltdown. There have been four bankruptcies in the financial sector this month.

Brokerages lost 4.7 per cent on the week, although second-tier brokerages gained. Banks gained 1 per cent for the week. Property companies rose following a report in the Nihon Keizai newspaper that the ruling Liberal Democratic Party is considering suspending the 0.15 per cent land valuation tax to improve liquidity in the property market and stimulate the economy.

The LDP may announce its rescue proposals on 10 December. These may include the use of public funds to buy preferred shares of banks. Prime Minister Ryutaro Hashimoto said on Thursday there were "many ways" to use public money to help financial institutions. He was speaking on a trip to Ottawa to meet Canadian Prime Minister Jean Chretien.

Copyright: IOS & Bloomberg