Stock-Market Plunge Hits Japan's Brokers

FROM his forested palace not far from the gloomy halls of the Tokyo Stock Exchange, Emperor Akihito said on New Year's Day that he worries about Japanese who have recently begun to suffer economic hardship.

He could easily have been thinking of thousands of workers in the securities industry who face layoffs or being sidelined to other jobs in 1993. Or perhaps he meant investors who saw the Nikkei stock index finish out last year at 16,924, a 26 percent drop from a year earlier.

The 225-issue Nikkei has now fallen 57 percent from its peak of 38,915 just three years ago. For the first time in postwar Japan, the market has had three years of ever-lower finishes. Trading volume has been its thinnest in 16 years. New stock listings came to a near halt in 1992.

The Nikkei reached a six-year low when it dipped to 14,309 in August during a market freefall that impelled the government to launch a rescue package.

One element of the package opened up the spigot of Japan's massive government pension and savings funds for investment in the stock market. Despite the risk to Japanese workers who rely on that savings and pension money, the effect of the government aid was to steady the Nikkei at about 17,000.

But the official attempt to artificially pump up the market could backfire, according to Hideaki Akimoto, chief strategist at Daiwa Institute of Research. Potential investors could just see the market as unstable and stay away.

Customers are in no mood to come back to the market after the collapse of the late 1980s boom. That speculative market was eroded by a government squeeze on credit starting in 1990, and then a series of securities and political scandals that eroded the credibility of the ruling Liberal Democratic Party and the "Big Four" securities brokerages (Nomura, Daiwa, Nikko, and Yamaichi).

Tokyo shares are still overpriced, many analysts say. Price-to-earnings ratios are more than three times that of Wall Street. To reach the ratio of American shares, the Nikkei would need to fall to a 12,000 - 13,000 level.

The securities industry is still partly coddled by the powerful Ministry of Finance, which has not fully liberalized the entire financial sector, foreign analysts say. Japanese brokers have grown accustomed to high fixed commissions and government help in restraining competition from banks or foreign firms.

The leaders of Japan's securities industry say profits in this fiscal year (ending March 31) will be the hardest hit of any of the nation's industries. Some small or weak firms may be encouraged to merge rather than go bankrupt.

American firms, however, such as Morgan Stanley Japan Ltd., Salomon Brothers Asia Ltd., Goldman Sachs Japan Corporation, have done better than their Japanese competition because of their research skills, technical and computer trading, and a focus on big clients rather than expensive retail brokering. The low Nikkei index has also attracted many foreign investors, who at times have often been heavier buyers of shares than the Japanese.

The 161,000 employees in Japan's securities industry may need to be cut by up to half, predict industrial officials. Many workers were hired during the boom period. The government may not grieve at this prospect. It has been concerned that so many college graduates want to enter finance rather than manufacturing.

Finance ministry officials say they plan to phase out fixed commissions for brokers in a few years. In April, the ministry will let banks enter the securities industry by allowing them to underwrite and sell bonds, but not sell stocks. While the move could shake up the industry, officials hope to ease the transition.

"We worked out the scheme taking account of currently tough business conditions in the securities industry," says Tadashi Ogawa, director general of the ministry's securities bureau.

Most Japanese brokers are hoping to "rationalize" their costs while waiting for a market upturn by late 1993, when the Japanese economy is expected to recover. But another stock-market fall could come as early as March, some analysts predict, when corporations try to improve their balance sheets by selling stock.

The government rescue package in August restricted banks from selling stock in an attempt to stop the market freefall. But pressures are building again for banks to unload shares.