Japan stocks plummet to 19-year low


Japan's economy just emerged from recession, but its stock market slumped on shaky global economic prospects

By Alex Frew McMillan

TOKYO, Japan -- Japan's stock market plunged to a 19-year low at the close on Tuesday, after a huge selloff in bank stocks.

The Nikkei 225 average fell fast and hard in the afternoon, closing down 3.2 percent at 9,217.04. That's a level not seen since September 1983.

The broader Topix finished down 2.81 percent at 904.24, its lowest close since 898.99 in late December 1984.

The sharp decline in Japanese equity markets comes as fears grow about the sustainability of any recovery in the world's second-biggest economy.

Japan reported second-quarter growth of 0.5 percent last week, but the result was almost entirely due to net exports.

That makes Japan vulnerable to a downturn in global demand, and particularly to a slowdown in the U.S. economy.

Besides banks, automakers and most other sectors suffered on Tuesday. Chip stocks such as Hitachi, Toshiba and Fujitsu fell 2 to 3 percent.

But it is banks that saw the most dramatic falls. Mizuho Holdings, the world's biggest bank by assets, led the losses with a 9.24 percent plummet to 226,000 yen.

Investors were reacting to a minor policy change and the move in the broader market.

A circle of selling

Banks have large stock holdings, so declines in the Nikkei intensify selling in bank stocks -- which can lead to a decline in the indexes and a "vicious circle" of selling.

"Their stock holdings are roughly close to their level of net worth, so clearly a decline of the stock market directly affects banks' value," Naoto Odagiri, credit analyst with BNP Parisbas, told CNN after the close.

Mitsubishi Tokyo Financial Group led the raw yen losses on Tuesday with a 55,000 yen decline, or 6.92 percent, to 740,000 yen.

The picture wasn't much prettier for the rest of the "Big Four." Sumitomo Mitsui fell 7.95 percent to 556 yen. UFJ Holdings crunched 6.08 percent lower to 247,000 yen.

Superregional bank Daiwa Bank, the No. 5 in the country, gave up 4.71 percent to 81 yen.

Thin volume exacerbates effect

Analysts were left scrambling to explain the selloff, suggesting it may have stemmed from selling by a hedge fund or another large investor.

"I don't see any particular direct cause," Odagiri said. "It's hard to give a full explanation of short term fluctuations of the market."

Markets were closed in the United States for the Labor Day holiday on Monday, meaning trading volume was thinner than usual in Japan on Tuesday. That magnifies price movements.

Tokyo trading volume has been very low, around 500 billion yen, for several days in a row.

Banks are also preparing to close their books on the first half of the business year at the end of this month, a deadline that encourages them to sell some of their crossholdings.

Policy shift hits big banks


Banks are preparing to close their books on the first half of the business year at the end of this month, which encourages them to sell some of their crossholdings

A policy shift is also in the wind on scrapping bank guarantees. Officially, the bank watchdog is still sticking to a deadline to end a guarantee on bank deposits by April 2003. That has led depositors to pull money from smaller banks at risk of collapse.

But there are suggestions the government will allow loopholes on scrapping a government guarantee on deposits. It is likely to allow loopholes for smaller banks, perhaps guaranteeing noninterest-bearing savings accounts.

"Then people may be happy with depositing with smaller banks, and there's no need to shift deposits to bigger banks," Odagiri said.

That puts pressure on large-bank stocks and would likely induce the ire of overseas investors.

"This could be interpreted as a sign that the government is not very forthcoming in financial reform."

The yen strengthened to 117.90 against the U.S. dollar, with fears the Japan selloff might signal a broader global decline in stock markets.

Selling modest in rest of Asia

The selling in Tokyo infected the rest of Asia, but modestly. The losses on the main markets stayed between 1 and 2 percent.

In South Korea, the Kospi fell 1.51 percent to 740.59. SK Telecom drifted 2.66 percent to 237,500 won, with Samsung Electronics off 1.9 percent to 333,500 won.

Steelmaker POSCO registered a strong gain, though, rising 3.64 percent to 114,000 won after saying it plans to raise steel prices to Japan in the fourth quarter.

Taiwan's Taiex declined 1.22 percent to 4,588.06. Market darling AU Optronics dropped 3.26 percent to T$47.10 despite saying it expects demand for its flat screens to recover in the fourth quarter.

But Via Technologies posted a 1.91 percent climb to T$47.10 after saying sales in August rose over July.

Stocks Down Under end up

New Zealand and Australia in fact ended the day up. The S&P/ASX 200 index finished ahead 0.39 percent in Sydney, with News Corp. up 1.7 percent to A$35.10 despite early losses.

Banks were higher, National Australia Bank rising 0.7 percent to A$35.10 and Commonwealth Bank up 1.1 percent to A$31.76.

New Zealand's Top 40 rose 0.59 percent to 2,069.9. Telecom New Zealand rose 0.99 percent to NZ$5.10 one day after paying its dividend.

Hong Kong lost more than 1 percent, with the Hang Seng index closing at 9790.68. China Mobile dropped 2.8 percent.

Singapore's Straits Times index is flat at 1461 heading towards the close. In India, Mumbai's Sensex is off more than 1 percent in morning trade.

Futures trading is hinting at a lower open on Wall Street when the U.S. market resumes Tuesday.