Market Watch : Heady Days May Be Over on the Tokyo Stock Exchange

TOKYO —  Tokyo stock experts may disagree over whether their battered market has further to fall before it is valued fairly, but they agree on one thing: Hitting new highs will be very tough this year.

That would be an unfamiliar experience for a market that has routinely chalked up record gains and that last year alone saw its key index rise nearly 30%.

And any hope that financial authorities can rescue the market with official or informal support of the kind some experts said saved the day after the 1987 crash, is probably misplaced.

“Policy is less able to support the market,” a foreign broker said. “They can’t just relax monetary policy to support the market because of the yen and inflation threat.”

After falling 2.6% Friday and 6.9% for the full week, the key Nikkei index of 225 stocks plunged again this morning. The Nikkei average fell by 1,459.79 yen--or 4.2%--in the morning trading session and continued its decline in the afternoon. The Nikkei index fell to 33,432.18, the first time since last July that it has been below 34,000. On top of the decline in the stock market, the yen was falling fast this morning.

Some brokers said rumors that the Finance Ministry had chatted with foreign brokers who engage heavily in futures-related arbitrage helped boost the index.

A ministry official said it had talked to futures brokers but had not engaged in special consultations and was not considering restrictions on futures-related trade.

Market analysts said futures-related trading accentuated Wednesday’s drop and helped move the index erratically Thursday, but added that more fundamental factors such as interest rate worries plague the market.

So pressuring futures traders, even if it does occur, is unlikely to override such basic problems, the analysts said.

“It’s a tactical response to a strategic phenomenon,” said Simon Smithson, an analyst at Kleinwort Benson International.

Interest fears are foremost, and many experts said the market is paying for its relentless rally late last year in defiance of continued high rates.

“Last November and December, the market overreacted to hopes of lower interest rates,” said Hidehiro Iwaki, economist at Nomura Research Institute.

The central bank has raised the official discount rate, now at 4.25%, three times since May, 1989, when it raised the key rate for the first time since 1980.

“The market is coming to terms with the fact that in the latter half of last year it went up in the face of fundamentals which were declining,” said Kleinwort Benson’s Smithson.

Brokers had hoped that a victory by the ruling Liberal Democratic Party in the Feb. 18 election for Parliament’s lower house would help the market. Such hopes were betrayed by a resurgence of fears that the Bank of Japan would raise the official discount rate soon.

“Once the election was out of the way, the yen didn’t strengthen significantly and interest rates didn’t come down,” Smithson said. “With nothing else to act as a distraction, you suddenly have to look at reality.”

Some stock brokers and bond dealers said Wednesday’s drastic fall in stock prices made it likely that the central bank would postpone a discount rate rise. Other brokers said such a move would not constitute a positive incentive for the stock market to rise.

“The central bank might say it was not going to raise the discount rate to stop the stock market fall,” said Yozo Asai, of Yamaichi Securities. “But even if they said that, it doesn’t mean they wouldn’t raise it in a month or two.”

Interest rate anxiety is being exacerbated by worries over a slowdown in corporate profit growth this year.

“We’re looking at downward revisions,” said Nomura Research’s Iwaki. Current profits for corporations in all sectors, originally seen as likely to be up 8% or 9% in the year to March 31, 1990, may now see growth closer to 6%, he said. That compares to gains of about 30% in 1988-89.

Perhaps most basic, no one sees any hope of a return to the loose monetary policy that once generated excess cash to drive up share prices.