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Japan stocks seen volatile, individuals new force

TOKYO: Retail investors may become more aggressive buyers of Japanese stocks in the new financial year when a tidal wave of maturing fixed-term postal savings matures, but their inexperience could fuel volatility, analysts say.

Some 58 trillion yen ($549 billion) of the Yucho fixed-term postal deposits will start to mature from this month, and several trillion could pour into the stock market as investors seek returns higher than the razor-thin near-zero rates set by the Bank of Japan.

But their purse strings could tighten quickly if the economy fails to emerge decisively from its worst post-war recession and the outlook for jobs and incomes turns gloomy.

In addition, a complicated change in the capital gains tax from April next year could be a time bomb that would prompt nervous and ill-informed individuals to sell.

"Now that the hot seat is occupied by individual investors, things could be a bit volatile," said Chikahiro Esaki, head of securities trading at Jardine Fleming Securities.

From April 2001, investors will no longer have the option of paying a flat 5.25 percent withholding tax to discharge their capital gains liabilities. Instead, they will have to pay capital gains tax every year, with all the cumbersome paperwork that entails.

The move follows the abolition of an old-fashioned securities transaction tax on March 31, 1999. And despite the two-year notice period, many individuals are ill-prepared, analysts said.

As the end of financial 2000/01 nears, many inexperienced investors may rush to sell stocks to avoid the added nuisance and in hopes of paying less tax before the system changes.

"Given the fragile economic recovery, whether the market sentiment manages to hold steady will become critical as the year goes by," said Tetsuya Ishijima, general manager and chief strategist at Okasan Securities Co.

Ishijima was worried that selling ahead of the tax change could hurt sentiment.

Masatoshi Kikuchi, senior strategist at Daiwa Institute of Research, agreed and said he estimated Tokyo's benchmark Nikkei average could slip to 20,100 by the end of financial 2000/01 (April/March) after hitting 22,000 by the end of December.

But those with greater expertise may try to seize the opportunity presented by such selling dips because an air of optimism has begun to pervade the Tokyo stock market.

Fed up with the near-zero deposit rates, many of Japan's traditionally cautious individual investors have started tapping the market, helping to fuel the Nikkei's 28.4 percent rise to 20,337.32 points in the financial year that ended on March 31.

Bankers and brokers have been preparing to welcome newcomers by launching a variety of investment trusts.

The driving force powering Japanese stocks in calendar 1999 was foreigners, whose net buying hit a hefty 9.0 trillion yen.

But that buying has started to ebb amid recent turbulence on Wall Street and a shift out of high-tech and Internet darlings, and the equity trusts have become a second wheel for the market, with net buying at more than 1.7 trillion yen since January.

Analysts said this trend looked likely to continue and, combined with the tidal wave from postal savings, net buying could total as much as last year's foreign purchases.

"Some of the postal savings may find a haven in equity trusts, but the good market performance of the past two years could also encourage other money, namely bank deposits, to flow into equity trusts," said Naka Matsuzawa, chief investment strategist at Nomura Securities Co.

Whether that is wishful thinking will depend on changes in innate investor caution and the Bank of Japan's monetary policy.-Reuters