Japan's Market Hits 1993 Peak, But Awaits Signs of Economic Recovery

ON Friday, the Tokyo Stock Exchange rose to its highest closing level this year - 21,193 on the Nikkei index. But three times earlier prices had risen above 21,000, only to drift back down like a surfacing whale.

Profit-taking by investors yesterday brought it down 55 points -

though not below 21,000.

The previous breakthrough, on Aug. 31, was driven in part by European and American investors, who see Japanese stocks as inexpensive.

The drag that has kept the market floating around 20,000 all year is uncertainty over when Japan's economy will recover. After two years of recession, company profits are still falling, interest rates are at historic lows, the government has few options left to boost the economy, and Japan's trade surplus keeps ballooning.

``Markets are unlikely to be convinced of a turnaround in Japan's trade fundamentals until year-to-year growth in the trade surplus turns negative, perhaps late in the autumn,'' says Robert Alan Feldmann, chief economist at Salomon Brothers Inc. in Japan.

Many market players await the release Friday of the Bank of Japan's survey of business confidence, which may show if a recovery is near.

Some investors anticipate a jump in share prices if the Bank of Japan makes another interest rate cut this month. Others say prices will only break the 21,000 barrier if the new government here decides to take drastic pump-priming measures, such as a large income tax cut.

In the meantime, the market's underlying strength comes from the return of individual investors, who were burned during the dramatic fall from the index high of 39,000 in late 1989. Security firms have reduced their minimum trading lot to these investors for the third straight year, hoping to spark stock purchases. Orders jumped markedly after Aug. 2 when 14 of the big firms cut the minimum from 1,000 to 100 shares.

The big draw for small investors has been a surge in new issues. About 100 firms will go public this year, according to the New Japan Securities Company, and even more next year.

Initial public offerings peaked at 141 in 1990, then fell back to 135 in 1991. The government suspended offerings between December 1991 and May 1992 because of the market slump. In 1992, only 34 offerings were made.

Many Japanese companies are not publicly listed. Pachinko parlors, for instance, a type of mindless pinball amusement, account for 3 percent ($170 billion) of Japan's economy, according to Yamaichi Research Institute of Securities and Economics. Yet no pachinko company is listed on exchanges. Two big share auctions have helped revive interest in the market. On Aug. 28, an auction of 600,000 shares for East Japan Railway Co. took in $2.2 billion.

Also last month, a successful auction was held for DDI, a domestic telecommunications company, bringing in $2.1 billion.

On Sept. 20, the government plans to announce a major deregulation of the economy, with telecommunication companies poised to benefit. Some analysts say this action could help the market surge to 23,000.