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Downward Spiral: No End in Sight To Japan’s Stock Market Slide

June 16, 1995

TOKYO (AP) _ With the Tokyo stock market hovering near three-year lows, equities analyst Yoshiyuki Higashi smiled nostalgically and remembered better days.

``We used to simply show customers information and they would buy big chunks of stock,″ Higashi said Thursday, sitting in his seventh-story office at Taiheiyo Securities. ``Now almost all the customers want to sell.″

Almost five years of bad economic news have pushed the market down to about 40 percent of the record highs it set at the end of Japan’s economic boom. This year alone, the market has lost more than 25 percent of its value, and most observers think it will keep going down.

This week, the market’s key index, the 225-issue Nikkei Stock Average, fell below 15,000 for the first time in nearly three years.

The drop came after life insurance companies announced they didn’t have enough cash to cover expected payouts this year. Those companies, a major force in the market, probably will sell stocks to make up the difference, analysts said.

The market fell again Tuesday for the fourth straight session when the government acknowledged a tenuous economic recovery was slowing. It cited the high yen, which is hurting Japanese exporters, forcing them to raise prices or take lower profits overseas.

Even when the Nikkei index ticked up Wednesday and then rose Thursday by 1.41 percent to 14,867.26 _ after dipping close to its August 1992 low of 14,309.41 _ it didn’t shake dealers out of their glum mood.

The ended the morning session Friday down 140.85 points, or 0.95 percent, at 14,726.41 points

Dealerss attributed Thursday’s gains to a government announcement it would release an economic stimulus package next week. But they weren’t optimistic.

``Even if they do announce some type of package here in the short run, that alone won’t take the market much higher,″ said Dan O’Keefe of Merrill Lynch. ``Look at the last 4 1/2 years. If you invested anything but short term on a government stimulus package, you would have lost money.″

During Japan’s economic boom in the late 1980s, investors used the market like a no-lose casino, often buying and selling huge blocs of shares within a day or two, then using new funds to finance new purchases.

Securities companies, which make most of their money on commissions as a percentage of sales, boomed, adding staff and giving big bonuses.

Inflated by speculation, the price-to-earnings ratio of Japanese stocks _ a key way of measuring value _ was two or three times higher than in markets in New York, Hong Kong and Europe.

But then stock prices started to decline, companies decreased investment, unemployment rose, and the stock market went into a long downward spiral.

Trading volume is one-fifth the level it was during the boom years, and because prices are lower, it makes the stock companies’ commissions that much smaller.

Taiheiyo’s staff has fallen from a high of 2,300 people to 1,600. Bonuses have been cut to one-fourth their previous levels. Expense accounts are a tenth of what they used to be.

To cover poor earnings, companies try to sell stocks, but by doing so, they push share values down. They have few other options; land prices are low and consumers are holding on to their money rather than spending.

Government-run companies such as public pension funds aren’t stepping in to buy, Higashi said. And foreign investors, who kept the market from plunging last year, aren’t buying either.

Some think the Nikkei index could fall as low as 10,000, lower than it’s been in more than a decade, or even to 7,000-8,000. People won’t buy again in force until they believe the market has bottomed out, says Higashi and others.

No one seems to think the market will rise back to the record of 38,915.87 it hit on Dec. 29, 1989.

``It won’t go that high,″ said Minoru Yamada, another Taiheiyo analyst. ``Well, maybe in 10 or 20 years.″