U.S. STOCK DROP SEEN SLOWING JAPANESE BUYING
A collapse in U.S. stock prices has  hit
Japanese investors hard, since they had shifted to stocks from
bonds earlier this year, and will slow down Japanese capital
flows to the U.S., investors and stock brokers said.
   Until recently Japanese net purchases of U.S. stocks were
projected to leap to eight to 12 billion dlrs this year from
four billion dlrs in 1986, securities industry sources said.
   "The Japanese had suffered severely from U.S. bond
investments and now (they are suffering) in U.S. stocks," said
Hiroyuki Kondo of Yasuda Trust and Banking Co Ltd.
    Japanese portfolio investment was concentrated in Treasury
securities until early this year, which led to heavy currency
losses following the dollar's steep decline. Even though their
U.S. bond purchases moderated since then, Japanese investors
continued to suffer losses as bond prices fell sharply in
recent months.
    Now the historic fall in the U.S. stock market has stunned
Japanese investors, killing their appetite for U.S. stocks.
    Keita Konishi of Sumitomo Life Insurance Co said while his
firm was not panicked into an across-the-board sell-off of its
U.S. stock investments, he does not expect it to resume buying
stocks for some time.
    There has been no panic selling by Japanese institutional
investors so far during the stock price nosedive, said Susumu
Uchiyama of Yamaichi Internatinal (America), Inc. Following the
steep decline, however, Japanese are not buying, even though
U.S. stocks now appear bargain-priced, he said.
    "There will be no big wave of Japanese investment in the
U.S. for the time being," said Keiji Tsuda of Nissei BOT Asset
Management Corp, an investment advisory body to Nippon Life
Insurance Co.
    "It's the time to think twice. The psychological impact (on
investors' behaviour) will drag on considerably," he said.
    The latest turmoil in the financial market was triggered by
U.S. Treasury Secretary James Baker as he threatened a futher
dollar fall in retaliation for higher West German interest rate
rises, and undermined foreign investors' confidence in the
dollar, Tsuda said.
    The U.S. economy is still sitting on the time bomb of huge
budget and trade deficits, he said, and investors' worries over
the twin problems have intensified.
    "Before I thought the dollar's large fall (over the past
two years) would take out the detonator out of that bomb, but
it hasn't," Tsuda said.
    Investors and brokers said the Japanese for the first time
have experienced the enormous volatality of the New York stock
market, often caused by "program trading."
    A stock trader at Daiwa Securities America Inc said that
while Japanese investors had been attracted by American firms'
superior performance relative to Japanese firms in terms of
earnings per share, U.S. stocks' downside potential is now much
larger than that oJapanese stocks.
    While the Japanese stock market has also taken a nosedive,
it could be stabilized by the efforts of large Japanse firms.
    A high percentage of Japanese equities are held by
companies who will hold on to their stocks and the stocks of
other Japanese firms in order to strengthen their business ties
through this cross-holding relationship, analysts said.
    Despite the massacare on the Wall Street, Japanese
investors are not expected to withdraw from U.S. stocks.
    U.S. equities are in a process to be built in
diversification of their portfolios and the portion of them is
still very small, Japanese investors said. But, it is unclear
when the Japanese will resume purchasing U.S. stocks and much
depends on the dollar's stability, they said.
    Kondo of Yasuda Trust said Japanese investors are not fully
convinced that Federal Reserve Chairman Alan Greenspan is
determined to fend the dollar's value and check future
inflation in the U.S.
    Because of uncertainty over the dollar's direction and
inflation in the U.S., Japanese investors have not yet jumped
on the Treasury bonds despite the latest sharp bond yield
rises, investors said.
    Konishi of Sumitomo Life said "A U.S. recession is being
talked about, so it may be time to shift back to bonds, but I
feel uneasy about buying any U.S. instruments right now."
    Tsuda of Nissei questioned the strength of the recent rally
in U.S. government bond prices. He said the steep bond market
rally has no real trend as bond prices are rising on short
covering and bills are rising on temporary fund shift from the
stock market.
 Reuter
