Japan looks for positives from package


Koizumi says the package is no "panacea" and can't save Japan right away

By Alex Frew McMillan
CNN Hong Kong

TOKYO, Japan -- Japanese markets showed a change of heart on Wednesday, moving higher ahead of the release of the government's antideflation package.

The benchmark Nikkei 225 index closed up 3.6 percent at 10,573.09, roaring back from Tuesday's disappointment.

Prime Minister Junichiro Koizumi's cabinet is set to unwrap its much-trumpeted package to help out the economy, at 7 p.m. Tokyo time Wednesday.

A leaked draft copy of the measures is already circulating.

Japan is currently mired in recession and battling downward prices, wages and a rising, record jobless rate.

Skepticism is rampant about what the government will deliver, with Japan watchers used to being disappointed in a decade of failed bailouts.

But after a market selloff on Tuesday, some observers were trying to glean the positive from Japan's steps on Wednesday.

Economist: 'No free lunch'

Jesper Koll, chief economist for Merrill Lynch Japan, noted the Koizumi administration is breaking with past aid deals by keeping the government checkbook in the drawer.

The package "is not a free lunch offer to companies and that is cheering on the markets quiet nicely," Koll told CNN. He applauded the package for not reverting to "socialism."


Investors have been disappointed Japan's banks aren't getting an infusion of government cash -- yet

Koizumi has pledged not to follow the course of past administrations, which tried to spend their way out of trouble.

They failed and have left Japan tied with Italy for the highest rate of national debt among the world's most-industrialized nations.

A new set of retail sales released on Wednesday emphasizes the need for action. Retail sales fell 4.7 percent in January, over the same time last year, according to the Ministry of Economy, Trade and Industry.

They were up 3.2 percent over the prior month, when seasonally adjusted. Sales of most goods rebounded after a poor December, with purchases of household electrical appliances leading the way with a 7.3 percent jump.

Despite the short-term solidity of the figures, it was the tenth month in a row that retail sales have fallen in Japan.

Economists say the record jobless rate, now at an unprecedented 5.6 percent, and a drop in wages, with total earnings now falling at 3.7 percent over a year ago, are putting consumers off.

Koizumi says package won't cure all ills

Stocks, particularly of banks, sold off on Tuesday as it became clear the package would not involve a cash injection now into the financial sector.

But bank stocks rallied on Wednesday and have generally performed well in the runup to the package.

The steps have been well telegraphed. The draft shows the government is promising through a variety of measures to stabilize the financial system, speed up the disposal of bad loans, stop the slide in Japan's stock markets and prop up small business.

"The measures … are insufficient for addressing the deflation problem," J.P. Morgan economist Ryo Hino wrote in a report. "Overall, this plan seems to be in fact a stimulus measure in disguise. It has all the supportive policies of a stimulus package, minus the spending."

Koizumi said on Wednesday that this is a "long-term battle" to bring Japan out of its decade-long slump, according to the Nikkei news service.

Experts are faulting the package for failing to deliver substantive change or proposals. The prime minister admitted it will not end Japan's economic ailments.

"It's not a panacea, where once we announce it, we can say, hey, the problem is fixed," he told reporters.

Shiokawa looks for liquidity from BOJ

The Bank of Japan is set to hold a regular meeting of its policy board on Thursday. But with interest rates virtually at zero, there is little the central bank can do.

BOJ Governor Masaru Hayami has stressed that the bank will not take the controversial target of setting an inflation target.

Japanese administrations often aim to deflect criticism by calling on the nominally independent BOJ to do more to help the economy.

On Wednesday, the government sought to defuse that tension.

"There is basically no difference in views between the government and the BOJ," Chief Cabinet Secretary Yasuo Fukuda said at a press conference.

Minister of Finance Masajuro Shiokawa said Wednesday he had chatted with Hayami in an ad hoc meeting that morning.

He said he had asked Hayami to make sure there was enough liquidity in the markets. Hayami reportedly replied that the policy board would take up that issue at its meeting on Thursday.

Economics Minister Heizo Takenaka often sits in on the BOJ's meetings as an invited guest.