Tokyo Market Heads Up After Early Plunge
Reacting to the plunge in prices on the U.S. stock market last Friday, the Tokyo exchange opened today with the biggest drop this year but quickly took a turn upward.
At the opening of trading, the key Nikkei index of 225 stocks fell 495.98 points, or 1.4%, from its Friday finish. It then plunged downward another 114.56 points before buy orders from institutional investors reversed the decline within an hour of the opening, trimming the loss to 342 points, or about 1%.
Still, losses across the board were reported, with high-tech issues leading the way downward. The biggest previous drop this year--489.90 points--occurred on June 15.
The dollar’s value, which was expected to play a major psychological role on the Tokyo stock market, also plummeted today, opening at 139.95 yen to the dollar, a hefty 2.8%, or 4.05-point, loss from Friday’s closing of 144.00 yen in Tokyo.
Within an hour, however, the dollar regained 1.05 yen in value, rising to 141.00 yen.
After the Tokyo foreign exchange market closed, the dollar plummeted 1.5% in value--to 142.05 yen--in New York on Friday.
Today’s opening was the lowest quotation for the dollar in Tokyo since it closed at 139.30 yen on Oct. 2.
Failure of the dollar to gain strength against the yen after the Bank of Japan raised the central discount rate by 0.5% to 3.75% last Wednesday had raised fears that the bank would be forced to carry out another rate increase to prop up the yen’s value.
The central discount rate is the interest rate that the central bank charges when it loans funds to private banks. Financiers had worried that any further increase in interest rates could dampen investment and consumption and drive down prices on the stock market.
After Friday’s selloff in New York, stockbrokers here had expected prices to fall sharply when the Tokyo market opened today. Nobuo Kurakazu, Daiwa Securities’ stock director, predicted Saturday that the dip in Tokyo would be temporary because the trouble in New York stemmed from such isolated factors as the collapse of the employee-led buyout bid for UAL Corp., the parent company of United Airlines.
Yuichi Sakai, an executive director of Meiji Mutual Life Insurance Co., also predicted a decline but said he did not expect a prolonged plunge.
Hirohiko Okamura, research chief of Nomura Research Institute, contrasted the UAL buyout with fears that existed two years ago about the collapse of the entire world financial system.
“It is inconceivable that (Friday’s plunge on the New York Stock Market) could spur a global stock crash,” 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.
“It is necessary to keep calm,” the French official urged. “This calls for very great cooperation on the part of all the responsible economic and monetary parties. In fact, this concerted effort is already in place.”
“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 now 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. In fact, well before Wall Street’s plunge, the widely watched DAX index of 30 selected West German stocks fell Friday by 23.44 points, or 1.5%, to 1,589 on fears that the central bank might raise interest rates again.
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.
“We are looking over a cliff,” said one London broker in an interview with Britain’s Press Assn. news agency. “The government can’t help us this time, and I think the chancellor might just let share prices take the strain.”
The main tactic that came out of weekend telephone contacts among Group of Seven government officials and central bankers was apparently to try to reassure investors that, because of the nature of the latest Wall Street price collapse, there is no reason for European markets to follow suit.
The kind of highly leveraged buyouts and junk bond financing schemes apparently at the root of Wall Street’s problems are still relatively rare in most of Europe. So, argue Europe’s leading economic officials, there’s no reason that new concerns over those techniques in the United States should have any echo here.
In London, share prices had already tumbled by 8% in the last six weeks amid gloom about inflation, a punishing 15% basic lending rate, and general concern about the economy. From a post-Black Monday high of 2,426 on Sept. 5, the key Financial Times Stock Exchange 100-share index had fallen to 2,233.9 at last Friday’s close--which came several hours before Wall Street prices collapsed.
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.”
And two German bankers agreed that emotion may well count more than reason as the markets open this week.
The first financial market to open for business following Friday’s Wall Street close was the Tel Aviv Stock Exchange, where prices fell 7% in record trading Sunday.
Staff writers Dan Fisher in London, William Tuohy in Bonn and Rone Tempest in Paris contributed to this story.
