Calm Returns to Tokyo Markets After Early Dive
Both stock prices and the value of the dollar initially plummeted as Japanese markets opened today, but within an hour large institutional investors stepped in with orders to buy, restoring calm.
When the stock market closed for its lunchtime recess after two hours of trading, the key Nikkei index of 225 stocks was down 407.84 points, only 1.2% below Friday’s closing of 35,116.02. About 320 million shares were traded in the morning session, a slightly brisker pace than on Friday.
Afternoon trading opened even higher--with the Nikkei index down only 388.75, or 1.1%.
At its low for the morning, the average had lost 611.52 points, or 1.7%, the biggest drop this year. But that was far less than the post-Black Monday plunge of Oct. 20, 1987, when stocks here lost 14.9% of their value, the largest single-day decline ever. On Black Monday, the previous day, New York stocks lost 22.6% of their value.
Tokyo’s market has been traditionally less volatile than New York’s, partly because an estimated 70% of the issues are held by so-called “stable shareholders”--often banks and corporations that are affiliated with each other and never trade their shares.
There were no reports so far, however, that the Finance Ministry had urged institutional investors to support the market, as it did after the 1987 crash.
Analysts said a number of factors--lessons learned from Black Monday, an absence of unfavorable indicators in the American economy, strong corporate profits in Japan and today’s rise of the yen against the dollar--combined to pull stock prices up again after the initial plunge.
Stock prices fell in other Asian and Pacific markets, including Hong Kong, Australia and New Zealand.
On Tokyo’s foreign exchange market, the dollar plunged 4.30 yen early in the day but later recovered to reach 141.15 yen, still 2.85 yen, or 2%, below Friday’s closing. The yen’s strength, analysts said, suppressed fears that the Bank of Japan might again be forced to raise its central discount rate that it charges when lending to private banks.
Only last Wednesday, the bank raised the rate by 0.5% to 3.75% in a futile attempt to lower the dollar’s value and stave off possible inflationary effects of higher cost imports of oil and raw materials.
Finance Minister Ryutaro Hashimoto told the budget committee of the lower house of Parliament this morning that the Japanese economy was in good shape and corporate profits remained high. He also pointed out that Friday’s stock plunge in New York reflected the failure of a buyout bid for the parent of United Airlines, not changes in the overall American economy.
“I do not foresee a big drop in stock prices,” Hashimoto said.
Kimitoshi Hasegawa, manager of the group pension fund management center of Dai-ichi Mutual Life Insurance Co., said investors had learned from Black Monday that they should not make the mistake of frantically selling their stocks. He warned, however, that shares of companies involved in mergers and acquisitions may decline as a result of the U.S. market plummeting in reaction to the United Airlines financing problems.
In fact, the stocks of four retailing firms that are targets of takeover attempts--Isetan, Daiei, Ito-Yokado and Fujiya--declined steeply this morning.
Kokichi Okada, a stock analyst, said economic conditions differ from those which prevailed on Black Monday. “There is no overheating in either the domestic or foreign markets; U.S. economic fundamentals are headed toward improvement and economic policy coordination among the leading industrialized nations is in good shape now,” unlike two years ago, he said.
“Basically, I see no reason for worry,” he said.
In Europe, central bankers were in touch with each other and with their counterparts in the United States and Japan all weekend discussing ways to contain the panic selling that the markets feared might snowball as stock exchanges reopened today in London, Paris and Frankfurt.
But as of Sunday night, about all they could do was to give European investors the kind of reassurance that the late President Franklin D. Roosevelt offered Americans when he took office: The only thing they have to fear, investors were told, is fear itself.
There is “no reason for such an exaggerated fall in London share values,” the Bank of England said after Friday’s 6.9% plunge in the Dow Jones industrial average.
“One must not give in to the panic,” said France’s minister of economy, Pierre Beregovoy, in an interview published Sunday by Le Journal du Dimanche.
“The mini-crash of Wall Street is an isolated American phenomenon,” Walter Seipp, chairman of West Germany’s Commerzbank, said Sunday. “In my opinion, it is without any negative consequences for the prosperity of the European stock exchanges.”
After 1987’s Black Monday, the so-called Group of Seven industrial nations--the United States, Japan, West Germany, Britain, France, Italy, and Canada--quickly eased their monetary policies to head off a worldwide recession they feared would otherwise follow the stock market crash.
Many feel in retrospect that they may have jumped too quickly, pumping so much additional liquidity into the markets by way of reduced interest rates that it triggered the rising inflation from which some of them--particularly Britain--still suffer.
Central banks in West Germany, Britain and Japan have all raised their lending rates within the last week in hopes of reducing demand and thus relieving upward pressure on prices.
Having moved to tighten the money supply, it is considered likely that, barring a major collapse, these countries will be all the more reluctant to change courses in order to cushion stock prices now.
Despite all the reassurance from top European bankers and government officials, brokers said over the weekend that they still expect a rough week ahead. “All stock markets are going to get smashed this week,” investment adviser David Fuller told London’s Sunday Times. “I don’t see any way a bad week can be avoided.”
Staff writers Dan Fisher in London, William Tuohy in Bonn and Rone Tempest in Paris contributed to this story.
