Tokyo Stocks Plunge by 6%; Dollar Surges

The key index on the Tokyo Stock Exchange fell almost 2,000 points early today, plunging below the 29,000-point mark shortly before the end of morning trading.

The dollar, meanwhile, surged against the yen, adding fuel to concerns about Japan’s financial markets.

“This time, the plunges are really deep. It will take a rather long time to recover,” said Ikuko Sekiguchi, a dealer with Nikko Securities.

The Nikkei Stock Average of 225 selected issues plummeted 1,826.07 points, or 6%, to 28,981.12. It was the Nikkei’s lowest level since Nov. 15, 1988, when it closed at 28,829.41.

The Tokyo stock market has fallen more than 20% since the start of the year.

The dollar opened today at 154.50 yen, up 0.85 yen from Tuesday’s close of 153.65 yen. It finished at 154.36 yen in New York overnight, up from 154.20 yen Tuesday. By late morning, it was changing hands at 155.20 yen after reaching a high of 155.50.

Japan’s markets were closed Wednesday for the vernal equinox national holiday.

Kazuto Aizawa, a trader with Nippon Kangyo Kakumaru Securities Co., said many market players were discouraged by the yen’s weakness despite the Bank of Japan’s discount rate boost earlier in the week.

Also, institutional investors were selling to offset losses ahead of closing their books for the fiscal year at the end of March, he said.

Aizawa said he could not foresee a recovery in the market “unless the government takes some measure, because the loss is so big.”

The shock waves from the Tokyo market’s free fall are certain to be felt at the U.S. market’s opening today. Wall Street will be waiting for one of two waves, or perhaps both at once: Some Japanese investors who sold shares in Tokyo this week may funnel that money into U.S. stocks, Treasury bills and bonds, as a safe haven.

At the same time, it is possible that wounded Japanese investors will begin dumping U.S. stocks and bonds to raise cash.

But many experts say it may still be too early to worry about Japanese dumping of U.S. assets, because many individual and corporate investors in Japan are flush with cash for now. A further plunge in Japanese stocks, however, could force some investors into liquidating their U.S. assets.

Meanwhile, the soaring dollar may soon cause Wall Street to turn bearish on stocks of U.S. companies that compete with Japan in exports. Those stocks--such as Caterpillar, U.S. auto makers and chemical companies--have been rising in recent weeks on optimism about the U.S. economy. But the dollar’s strength may be reaching the point where it will begin to crimp U.S. exporters.

Currency dealers said the dollar’s surge followed a strong showing in New York, where multiple factors, including escalating tensions in the Soviet republic of Lithuania, were said to have contributed to the U.S. currency’s strength.

Lithuania declared its independence from the Soviet Union this month, but the Soviets have termed the move illegal. On Wednesday, Soviet President Mikhail S. Gorbachev ordered Lithuanians to turn in their weapons.

Investors often regard the dollar as a safe haven in times of international tension.

A dealer with the Bank of Tokyo said many currency market players had anticipated Tuesday’s action by Japan’s central bank to raise its official discount rate by a full percentage point to 5.25%.

The Bank of Japan said it raised the interest rate it charges on loans to commercial banks to contain latent inflationary pressures and bolster the yen.

The price of the benchmark No. 119 Japanese bond fell to 86.01 points from Tuesday’s close at 86.27 points. The yield rose to 7.35% from 7.29%.