Tokyo Stocks Plunge Again; Traders See No End to Declines

Tokyo stocks tumbled to a big loss Monday as the once-high flying Japanese market’s key index fell another 4%, to bring the year’s pullback to almost 20%.

The selloff continued early today: After plunging 1,353.20 points Monday, the Nikkei index dropped another 501.43 points by mid-morning today, to 30,761.81. It recovered somewhat by the mid-morning close, however, when it stood at 31,106.57, off 156.67 points.

The key question remained unanswered early in the day: Would the Bank of Japan raise interest rates again and by how much?

The Nikkei’s Monday drop crashed it through the 32,000 mark for the first time in almost a year. The loss of 4.15% was the third-biggest daily fall in terms of points.

Pessimism pervaded the Tokyo market after the drop and brokers were hard put to find any sign that an end to the declines was in sight.

“I had the most bearish weekly strategy meeting I’ve ever had this morning,” said Andrew Ballingal, senior manager of the equities department at Barclays de Zoete Wedd in Japan. “I don’t see anything in the domestic context or the external context to turn things around,” he said.

Brokers said heavy computer sell programs contributed to the loss. Talk that some speculators had run into financial trouble and were unloading shares also unnerved the market.

Market analysts noted that the presence of the same bearish factors that have plagued the market since the start of this year: prospects of a weaker yen, higher interest rates, slower corporate profit growth and higher oil prices.

Such worries have lopped almost 20% off the Nikkei since the index ended 1989 at a record high of 38,915.87.

So far this year, in point terms, the Nikkei has suffered six of its 10 worst drops. It plunged 1,569.10 points Feb. 26, its second-biggest one-day point drop.

In percentage terms, Monday’s slide wasn’t one of the market’s top 10 declines, but it did smash through a key psychological mark.

“The fall today was really severe for the market,” said Setuo Watanuki, a trader at Toyo Securities. “It seemed to have ripped through its resistance line.”

Support levels once seen at 32,000 have now been lowered to the 27,000-29,000 range, but brokers seem to lack confidence that declines will necessarily halt there.

Said Kunio Misaki, a senior analyst at Nikko Securities, “It is very difficult to say, ‘This is where the market will stop falling.”’

Some brokers said there was hope the market might improve, or at least stabilize, when trading for the new fiscal year starts on March 28. “Until the 27th, it won’t be a bright market,” Misaki said. “After that, we’ll see.”

The start of the new business year means the end of selling related to annual book closing, when year-ending accounts are settled for investment funds and new budgets take effect. Many foreign brokers who had felt over-exposed to Tokyo shares have already cut back their portfolios, some brokers said.

But such factors are unlikely to fuel a rally as long as the yen is seen weakening and interest rates rising. “The key, really, is ‘When does the yen bottom out and when do interest rates peak?”’ Ballingal said.

The dollar closed at 153.55 yen and 1,6873 West German marks Monday, versus 152.62 yen and 1.6990 marks at Friday’s New York close. It was the dollar’s highest close in Tokyo since March 12, 1987, when it closed at 153.69 yen.

Financial markets in Tokyo have since January expected the Bank of Japan to raise the official discount rate again to defend the yen and curb inflation.

The central bank has not done so, partly due to opposition from the finance ministry, which worries that a rise would hurt the economy, and partly due to fears that a hike would damage stocks.

Now the stock market fears that when the central bank does act, the rise will not be enough to bolster the yen, and another rise will have to follow.

Early today, Japan’s NHK TV reported that the Bank of Japan was planning an increase of 1 percentage point in the discount rate, to 5.25%, imminently. The central bank’s embattled president, Yasushi Mieno, said early in the day that no decision had yet been made.

Global interest rates have been rising in reaction to the demand for capital to cope with events in Eastern Europe, and the unification of Germany in particular.

This trend, combined with the view of many market experts that Tokyo share prices remain technically overvalued, gives stock market players little hope.

“In their hearts, people don’t think the market will rebound,” said Yasushi Sakamoto, a fund manager at Toyo Trust and Banking. “Looking at the longer term, expectations for stock market growth are not very high.”

The pessimism has largely stayed inside Japan’s borders, however, since the country’s stock market has long been viewed as overvalued in comparison with other world markets.