Tokyo Stocks Plunge but Recover Half of Loss
Stock prices plummeted on the Tokyo Stock Exchange this morning, with the Nikkei index taking a free-fall through the symbolic 30,000-point barrier before rebounding significantly in an afternoon rally to close at 29,843.34, down 963.85 points.
As investors lost confidence in the strength of the yen and in the ability of financial authorities to stabilize the currency and securities markets, the Nikkei collapsed by more than 1,800 points in the morning session to reach its lowest level--28,971.12--since November, 1988.
Even with the afternoon rally, in which the index recovered 869 points, the day’s trading underscored an increasingly pessimistic mood in Kabutocho, or Japan’s Wall Street.
The loss represented a 3.1% decline in the Nikkei from its finish Tuesday, when it fell 456.05 points on the eve of a national holiday Wednesday when markets were closed.
Although some brokers warned of a “melt-down scenario” seizing the stock market, the world’s largest in terms of capitalization, others noted that volume remained relatively low and that an atmosphere of crisis had not set in on the trading floor.
“I’d say we’re not seeing panic yet,” said Lynne Ross, director of equity research in Tokyo for the French brokerage, W.I. Carr. “But there’s a definite lack of confidence in the government’s ability to restore stability in bonds, and to back up the yen.”
The dollar was changing hands at above 155 yen in morning trading, higher than the 154.65 close in New York on Wednesday, reflecting speculation that the Japanese currency would continue to weaken despite Tuesday’s 1 percentage point hike in the official discount rate by the Bank of Japan. The dollar had closed here Tuesday at 153.65 yen.
In a vicious circle, stock prices declined on pessimism over the strength of the yen, which in turn lost value because of the trouble in the stock market, traders and analysts said. Dealers also reportedly bought dollars on remarks by Treasury Secretary Nicholas F. Brady that a stronger U.S. currency would be tolerated.
Intervention by the Bank of Japan--which reportedly sold $700 million worth of greenbacks this morning--failed to stem the yen’s decline, which was traded at its lowest level in more than three years.
Finance Minister Ryutaro Hashimoto confirmed today that he would fly to Washington over the weekend to meet with Brady to discuss foreign exchange policy coordination and financial issues under discussion in the Structural Impediments Initiative talks.
But on the whole, authorities reacted coolly to the continued bearishness in the stock market--where the Nikkei average has lost 23% of its value since the market peaked at 38,915.87 on Dec. 29. By comparison, the Nikkei shed only about 21% during the global stock panic of October, 1987.
