ROUNDUP Japan ruling party stimulus proposals likely to disappoint market

TOKYO (AFX-ASIA) - Proposals by the ruling coalition parties for a package of measures aimed at boosting theeconomy, and particularly land and equity prices, are likely to disappoint the market, analysts said. They said the measures are mainly short-term fixes that fail to deal with underlying problems with the economy and financial markets. Takayoshi Taniguchi, a senior member of New Komeito, which is one of the three ruling coalition parties, told AFX News that the stimulus plans would include proposals to create a government-linked body to buy the banks' shares. "The ruling parties will work out an emergency economic stimulus package today, which will include the setting up of a body to purchase banks' cross-shareholdings," Taniguchi said. However, State Minister for Economic and Fiscal Policy Taro Aso told AFX that the proposals may be difficult to implement. Aso, who has seen a draft of the plan, told AFX News: "I know that the draft includes the setting up of a body to purchase bank cross-shareholdings but it is difficult to implement. "If the government sets up such a body, it will have to take responsibility for it, and if private companies set it up, it will also be hard to operate the body," he said. "These issues should be discussed in the Liberal Democratic Party's financial system stabilisation panel ... because the package includes tax incentives for land and stock trading," he said. Aso added that the stimulus plan "does not include a request to the Bank of Japan to further loosen its monetary policy stance." Merrill Lynch chief economist Jesper Koll said the focus of the market is on corporate restructuring, not government intervention. "The equity market and economy improve, not when the government intervenes, but when corporate leaders restructure," he said. "There is no doubt that there are one or two companies (that are restructuring) but this is not the point." It appears that "there is nothing in the package that directly stimulates demand, which is very different from what you have" had in previous years, he said,adding: "This is basically something to be put on the table in the event of a collapse." Koll noted said "there is a breakdown in consensus" which slows down the process "from proposal to implementation. "The idea of setting up a public corporation to absorb cross-shareholding depends on the details for whether it is positive or negative," he said. ABN AMRO strategist Darrel Whitten said the proposed stimulus measures will be hostage to a difficult implementation. "It all depends on whether they can get it through," Whitten said. Finance Minister Kiichi "Miyazawa and the MoF are saying they won't be able to. So far it's been a bunch of trial balloons. Any suggestions to buy shareholdings have been laughed off the table," he said. "The question they should be asking is why the market is sick ... If they are going to work on tax changes, (this) doesn't come into effect until September or whenever. Credibility levels at this point are not too good," Whitten said. UBS Warburg strategist Dick Beason viewed the proposals that have been suggested so far as "pretty much negative. "The reason that it doesn't seem to be positive is the whole market is more mature" and wants to see real structural reform, he said. "The politicians are suggesting they don't know what structural means." Meanwhile, "the trust industry is champing at the bit to introduce 401K" type funds but little is being done to move this forward. "They should talk about the whole tax system, not just a hit and miss affair," Beason said. "They seem to think that structural reform involves not talking about another fiscal stimulus package -- that's good," but not enough, he said. "Nothing could be implemented before the new fiscal year in April so they may as well ... say 'we are going to announce something in July'," and make the proposals more realistic. "We could see a mini-rally (on the announcement) but I don't think this is anything significant," Beason said, adding: "It should be yen negative."

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