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Bank of Japan Unveils Stock-Buying Plan - 2002-09-20


The Bank of Japan unveils a controversial plan to buy shares and a scandal expands at Japan's top electricity company.

The Bank of Japan will buy stocks directly from the country's banks. The unusual plan aims to protect the fragile banking system in case the stock market falls further. It is already hovering near a 19-year low.

Japan's banks have large share portfolios - the legacy of strong relationships between bankers and corporate directors. But with the Japanese economy in a long slump, the Bank of Japan is concerned that the shareholdings could be destabilizing to the financial system, because they cut the value of the banks' assets. This is especially bad when coupled with the billions of dollars in bad loans the banks hold.

John Richards is a market analyst with investment bank Barclays Capital in Tokyo. "They [The BOJ] are worried about the long-run stability of the system," he said. "The threat to the financial stability in Japan of going back into recession is enormous. The BOJ decided to act to head that off."

A scandal over falsified safety records is widening at Japan's largest utility company. Tokyo Electric Power recently admitted to a series of cover-ups at its nuclear power plants. All involve cracks found on nuclear reactors. On Friday, the company reported eight new incidents.

As in the other cases, TEPCO allegedly made repairs, but did not report the problems to the government, as legally required.

Several top executives said earlier in the week that they will resign, and President Nobuya Minami has been demoted.

Mr. Minami offers apologies for the problems and insists that safety is the company's top priority at its nuclear facilities.

The scandal has raised widespread concern in Japan, where nuclear plants generate one-third of the country's electricity.

Car maker Nissan will invest $1 billion in China's Dongfeng Motor to create a new company. It will produce cars, trucks and buses for sale in China.

Nissan well help Dongfeng implement a restructuring program, similar to the one the Japanese carmaker undertook a few years ago.

The move is the latest investment in China by foreign automakers eager for a share of its rapidly growing car market. Nissan's rivals Honda, Toyota and Volkswagen already make cars there.

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