Japan stocks set 15-year low

Japan stocks continue to drop, despite interest-rate cut

By Staff and wire reports

TOKYO, Japan -- Japanese stocks set a 15-year low Thursday as investors failed to respond to a surprise interest-rate cut by the Bank of Japan.

The benchmark Nikkei 225 index closed at 12,682, down 1.6 percent. The yen also hit a two-week low against the dollar, at 117.08, in late trading.

Bank shares were a bright spot after the Bank of Japan cut the overnight call rate cut to 0.15 percent. But analysts said the relief for Japan's debt-strapped banks would be short-lived. Most eased off their highs by the end of the day.

"The upward momentum is likely to disappear very quickly," said Hironari Nozaki, banking analyst at ABN Amro Securities.

Economists are still waiting for a solution to Japan’s banking woes. They are hoping the government will step in to force banks to write off bad debts they are holding on their balance sheets.

Risk of recession

Satoru Ogasawara, an economist at CS First Boston, said that by lowering rates, the Bank of Japan “is throwing a bone to the government “ to bring about bank reform.

Ogasawara said the downside in Japan is greater than it had been last month. Other economists paint the picture that Japan runs the risk of heading into recession.

High-tech bellwether Sony Corp lost 2.72 percent to 8,220 yen and Furukawa Electric Co Ltd, Japan's top maker of optical fiber, plummeted 7.81 percent to 1,429 yen. Furukawa dropped 10.3 percent Wednesday.

Furukawa owns 9.8 percent of U.S.-based JDS Uniphase, the leading fiber-optic components maker. JDSU has announced 3,0000 layoffs.

Markets took the rate easing as a recognition by the central bank of deepening economic trouble. They latched onto old fears -- slowing U.S. growth, dwindling global high-tech profits and an economy at home on the edge of its second recession in two years, led by a prime minister on the verge of resigning.

Quantitative easing

Most traders said more aggressive easing was needed for a spirited boost to the economy, citing more calls for a return to the central bank's experiment with zero rates or a "quantitative easing."

Quantitative easing refers to pumping up the money supply by setting inflation or monetary targets, or by buying huge volumes of Japanese government bonds or foreign currency.

"Interest rates don't matter. What matters is a quantitative easing of money," said Robert Howe, president of AIMIC Investment Management.

"Until we see clear signs the Bank of Japan is expanding its balance sheet, the stock market and the economy will continue to weaken."

Hayami said the BOJ would consider the benefits and side effects of a return to zero rates or an expansion of outright bond buying before rushing to ease policy further, but he added that Japan was in no risk of a deflationary spiral.

"Prices are overall weak. We see no dangers of a negative cycle where weak prices hit corporate and personal incomes," he told a parliamentary committee.

"But the pace of recovery is slowing and we need to watch the downward pressures on prices stemming from weak demand."

Traders said the stock market's bigger priority remained Wall Street, and investors took their cue from another unnerving tumble in the Nasdaq to punish Japanese high-tech stocks on Thursday.

Reuters contributed to this report.

Japan stocks follow U.S. lead
March 1, 2001

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