Thou Shalt Buy Stocks.(Japanese stock prices)(Brief Article)(Statistical Data Included)

As stock prices in Japan collapsed to a 16-year low last week, Tokyo stepped in to pump up the market and rescue the country's sinking banks. That should have been welcome news to Oki Matsumoto, a former partner at Goldman Sachs who, three years ago, established an online trading venture called Monex. His plan: harness the power of the Internet and "big bang" financial reform to become Japan's answer to America's new breed of discount online brokerages. But Japan's reluctance to follow through on reform has left the market stagnant. Monex expects to post a loss when the fiscal year ends on March 31, and 2001 looks no better. Still, Matsumoto sees Tokyo's emphasis on boosting share prices artificially as the core of Japan's problem. "It's unbelievable," he says. "I'm very scared that the government doesn't know what's going on in the banking sector."

It's no secret. Since the big-bang reform of '97, the bad debt load of Japanese banks has actually grown from 4 to 6 percent of all loans, and fore- casts expect the $531 billion total of "nonperforming loans" to continue rising sharply. There is little chance anyone can collect these debts, yet the banks are increasingly unwilling to write them off as losses, and the markets are increasingly worried about Japan's financial health. As Tokyo's Nikkei index started to plummet anew earlier this month, the government stepped in with a "Japan Rebirth Plan" that quickly backfired. The Fitch ratings agency of New York delivered a vote of no confidence last week--placing 19 Japanese banks on "negative review" due to bad loans and weak share prices. The tremors reached all the way to Wall Street, helping to send the Dow Jones industrial average plummeting below the 10,000 level. Japanese Prime Minister Yoshiro Mori will be in Washington this week, trying to put on a bold face as calls mount for his resignation at home.

What went wrong? Japan seems to be taking a big step backward to the days of "command capitalism." In the mid-1990s, Japan's Finance Ministry manipulated supposedly private postal savings accounts to buy stocks and stem the downward spiral of the Nikkei. These quiet "price- keeping operations" were an open secret. The new Rebirth Plan is far more brazen. Announced March 10, it is a work in progress but appears likely to include both a public fund to buy stocks from banks and open encouragement (such as tax incentives) to private investors to buy shares they otherwise shun. "It's gone far beyond price keeping. This is price manufacturing," said Noriko Hama, a senior economist at the Mitsubishi Research Institute in Tokyo. "The markets are indicating huge problems, but politicians are ...