TOKYO, March 13: Japan’s financial watchdog unveiled a plan on Thursday aimed at boosting weak stock prices and averting a financial crisis but shares dropped further and analysts dismissed the measures as cosmetic.

The six-point initiative by the Financial Services Agency (FSA) will ease rules on firms buying back their own shares starting March 24, and will ask industry groups as early as next week to set guidelines to limit short-selling.

Another three measures, including the boosting of central bank purchases of shares owned by banks, will be decided on Friday, said Kazuo Kitagawa, policy chief of the ruling coalition New Komeito party.

Despite the new rules, which were leaked in major newspapers earlier, the Nikkei-225 index on Tokyo’s stock exchange closed down 0.94 per cent at 7,868.56 points.

The government has a track record of introducing measures to lift stock prices artificially in the lead up to the financial year-end on March 31 when most companies close their books and calculate losses on their stock portfolios.

Hiroaki Kuramochi, head of trading at Credit Lyonnais, described the measures as cosmetic, adding most investors were expecting more drastic measures. These could have included scrapping accounting rules which force firms to value their financial assets at market prices, he said.

“With so much noise and distraction, it was difficult for traders to sort the wheat from the chaff and the market basically ended up drifting,” he said.

Under the FSA’s plan, the maximum amount of their own shares companies can buy back would be quadrupled for three months from March 24, an FSA official said.

Asked whether the agency would extend the period if market fears continue, the official said: “We are hoping the anxiety in the market does not go on for too long.”

The FSA plans to put pressure on institutional investors to justify their lending of stocks to short-sellers, who sell borrowed shares and buy them back later in the hope of making a profit as the price falls.

The scheme would also require improved risk management of brokers’ stock trading on their own account and would ask financial institutions to take market conditions into account when selling shares.

In addition, the FSA said it would crack down on deals based on a stock’s closing price, which it argues invites price manipulation.

Japan’s ruling parties will continue to discuss increasing the Bank of Japan’s (BoJ) planned purchases of shares from banks from two trillion yen ($16.9bn), said New Komeito’s Kitagawa.

The BoJ said on Wednesday it had purchased stocks worth 906 billion yen from banks by Monday after starting the stock-buying scheme in late November last year to reduce banks’ vulnerability to volatile market swings.

The parties will also discuss extending the planned September 2004 deadline for banks to reduce their shareholdings below the level of their core tier 1 capital and strengthening a government body which buys shares, Kitagawa said.

But Peter Tasker, consultant strategist at Dresdner Kleinwort Wasserstein, said all the measures were unwarranted.

“There has never been a March crisis,” Tasker told a news conference. “This year it is close to what you could call a March unholy mess and undignified scrabbling around.”

The market “is falling for completely defined reasons due to the concerns about the global economy which investors share and there is no way you can just change that.”—AFP