FINANCIAL MARKETS : Tokyo Stocks Continue to Fall After Big Plunge
Prices on the Tokyo Stock Exchange continued to plunge early today, following Wednesday’s sharp decline. Traders blamed foreign sellers, but overall trading was thin.
The Nikkei index of 225 stocks tumbled 601.98 points in late morning trading, then recovered some of the loss. At midday, the index was off 405.97 points to 35,328.36. That 1.1% drop followed Wednesday’s decline of 1,161.19 points, or 3.15%--the fourth daily loss in a row, and the worst since the global market crash in 1987.
The Japanese market’s weakness will cast a shadow over Wall Street’s opening today, where bearish sentiment is likely to rise among already jittery traders.
Tokyo stocks opened with a rally today: 13 minutes into the session, the Nikkei was up 414 points. Then sellers soon took over, led by foreign speculators unwinding futures-related positions, traders said.
But even without the futures-related pressure, “there aren’t any reasons for the market to go up,” said Toranobu Sugai, a trader at Shearson Lehman Hutton Asia Inc.
Wednesday’s selloff was sparked by fears that the Bank of Japan might raise its discount rate for a fourth time since last May 31. That spurred dumping of Japanese bonds, driving market interest rates higher and spooking stock investors.
Japanese interest rates rose sharply in January, partly as a reaction to Japan’s strong economic growth.
Meanwhile, Federal Reserve Chairman Alan Greenspan indicated to Congress on Tuesday that he would not ease credit in the United States. That threw cold water on Japanese hopes that lower American interest rates might help lead to lower Japanese interest rates.
Ironically, the market was primed for bad news by Sunday’s good news--for investors--that the ruling Liberal Democratic Party had won a convincing victory in elections for the lower house of Parliament. There had been widespread fear that the central bank had been postponing a rise in the interest rate it charges on loans to commercial banks until after the elections in order to bolster the ruling party’s fortunes at the polls.
Indeed, when trading opened Monday, stock prices declined instead of increasing as they usually do when the Liberal Democrats win an election.
On Wednesday, continuing fears ignited the selloff of national government bonds, forcing the Finance Ministry to step in with purchases to prop up prices in the morning. Then, an hour before closing, institutional investors began dumping large lots of stocks amid light trading, spurring a final-hour plunge.
American-style computer-directed program trading--which takes advantage of a gap between current prices and prices of stocks for delivery in the future, a trading strategy not followed here in 1987--was blamed in part for the plunge.
Bonds rebounded sharply as stocks fell.
Institutional investors reportedly sold stocks to avoid further losses that they feared they would have to list when they settle accounts March 31, the end of Japan’s fiscal year.
