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Surge Fizzles on Day After

October 3, 1990

TOKYO (AP) _ After a spectacular one-day jump that breathed life into Tokyo’s bearish stock market, share prices fell back slightly Wednesday and some analysts said prices had yet to reach bottom.

The 225-issue Nikkei Stock Average fell 49.02 points, or 0.21 percent, ending the day at 22,849.39 in moderate trading.

The relatively tame performance came one day after share prices rocketed a record 13.24 percent, triggered by a Finance Ministry announcement of measures aimed at encouraging buying and reducing market volatility.

Despite that initial burst, several analysts predicted the world’s largest stock market, which fell 46.1 percent in the first nine months of the year, is not yet ready for a sustained recovery.

The surge in prices Tuesday ″will not set a new trend,″ said Masahiro Umemori, an analyst with Nomura Securities. ″I think the market has not hit bottom. It’s going to fall some more.″

Kazu Nomura, a trader with New Japan Securities Co., also predicted prices will fall. ″The market’s environment is so bad and pessimistic. Investors have no buying incentive.″

Analysts noted some of the reasons behind the market’s slide the past two months, including nervousness about the Middle East, had yet to disappear and would cause continued volatility.

But Robert Zielinski, banking analyst with Jardine Fleming Securities Ltd., said he expected share prices would move up, based on the Nikkei index’s short-lived dip underneath 20,000 on Monday.

″When it went below the 20,000 level, we felt pain for the first time,″ particularly among some smaller insurance companies, Zielinski said. ″We’ve clearly hit some bottom. There are some signs that maybe the worst is behind us.″

Despite the market’s losses of $2.1 trillion through September, there has been little apparent damage to the economy beyond concerns of a capital shortage among banks as the value of their stock portfolios dwindles.

″We would not expect severe consequences″ on the economy because of the market decline, said Kermit L. Schoenholtz of Salomon Bros. Asia Ltd.

He said the Japanese economy remains ″remarkably healthy,″ largely because of improved corporate balance sheets, the healthier fiscal condition of the government and high levels of business investment.

Paul A. Summerville, senior economist with Jardine Fleming, also described the underlying fundamentals of the economy as ″very strong″ and said Japan is well placed to remain competitive globally.

″Everything the world needs to become more competitive Japan sells,″ he said.

Indeed, an economic forecast released by the Research Institute on the National Economy, a privately financed think tank, suggests that the stock market decline could benefit the Japanese economy.

″Losing a bubble is rather a plus to the Japanese economy in the long run,″ it said. ″A series of stock market plunges paved the way for growth with balance between actual economy and financial markets.″

The report said many Japanese corporations have strengthened their financial positions during the country’s lengthy economic boom and will be able to weather the stock slump.

Summerville said the decline in stock prices reflected a realization among Japanese that the government is nudging up interest rates, which makes stock investments worth less.

″What the market is doing is finding a base, a core solid base to grow from in this new period of restrictive monetary policy,″ he said, adding that such a level might be between 15,000 and 20,000.

Meanwhile, the dollar closed at 136.65 yen, down 0.08 yen from Tuesday’s close of 136.73 yen. It opened at 136.33 yen and ranged between 136.21 yen and 136.70 yen.

Dealers said falling oil prices triggered the dollar’s slip against the yen earlier Wednesday.

They said investors avoided major moves ahead of testimony by U.S. Federal Reserve Chairman Alan Greenspan, who spoke after the Japanese markets closed.

Greenspan said he supported President Bush’s plan to cut the federal deficit, which suggested the central banker might push U.S. interest rates lower. That could benefit the U.S. stock market and cause Japanese investors to move more money into the United States.

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