Tokyo Stocks Take Biggest Plunge Since ’87
Prices on the Tokyo Stock Exchange continued their spectacular meltdown today, with the widely watched Nikkei average losing 6.6% in its second worst one-day decline ever. The Japanese yen, meanwhile, plunged to a 39-month low--trading at more than 160 to the dollar--before recovering somewhat.
The free fall of Japanese stocks--down about 30% since the beginning of the year--may put more pressure on U.S. stock and bond markets.
This is because Japanese investors suffering from paper losses may be forced to sell part of their large holdings of American securities and other assets to raise capital. That could depress an already skittish U.S. stock market while forcing up American interest rates. It also could reduce new Japanese investment in the United States.
The drop also rekindled fears of further declines in a Japanese market--by far the world’s largest--that had been one of the world’s hottest during the past decade. Yoshihiro Ito, general manager of the securities division of Okasan Securities, said he feared that the new low for the year would create a “situation in which no one would know where the bottom would be.”
“This is the final blowout, the last thing we wanted to see,” Tadashi Kawakami, a trader for Merrill Lynch Japan, told Reuters news service.
A Dai-Ichi Kangyo Bank exchange trader blamed the latest landslide in stocks on a morning report in the Nihon Keizai newspaper that Japanese insurance companies intended to sell some of the stocks they have traditionally held in major corporations.
If the insurers “decide to sell their long-term holdings, that’s a very large amount. It could be devastating,” Kawakami said.
The Nikkei average of 225 stocks nose dived 1,978.38 points from Friday’s close to end at 28,002.07. That drop followed a 1,045.48-point dive Friday and was second, in terms of percentage and total points, only to the 3,836.48-point, or 14.9%, decline of Oct. 20, 1987. The 1987 decline came in the wake of Black Monday on the New York Stock Exchange.
It was the third time this year that the Tokyo market has set a new record for its second-worst loss in total-point terms. Until today, the second-largest point loss was the 1,569.10 decline on Feb. 26, 1989. (The second-largest percentage loss was 4.9% on Oct. 23, 1987.)
Tokyo share prices had rallied in the afternoon session, traders said, after a Ministry of Finance official said insurance companies do not plan to sell stocks as had been reported. Bargain hunters also boosted the market. By mid-afternoon the market was down 4.41% after having fallen 5.74% at the end of the morning session.
But that rally fizzled in late trading as bargain-hunting was overwhelmed by new waves of selling.
Since it set a new record of 38,915 on Dec. 29, the last trading day of 1989, the Nikkei average has fallen almost continuously due to economic uncertainty, political paralysis and the weakened yen. Most of the plunge came since a general election on Feb. 18.
The dollar rose to 160.35 yen at one point today--a 1.7% loss for the yen compared with Friday--before the Bank of Japan intervened by selling more than $700 million in dollars to buy yen, driving the greenback’s value down to 159.90 yen at the end of morning trading. It was the first time since December, 1986, that the U.S. currency had traded at an exchange rate of more than 160 yen. On Friday, the dollar had closed at 157.65 yen.
In late afternoon trading today, the dollar was still trading at about 159.90 yen.
Fumio Nagata, director of Nomura Securities’ equity department, at one point today said he had feared that the Nikkei average would plunge below 28,000.
In the first hour of trading, only a third of the stocks offered for sale found buyers as the Nikkei average lost more than 3% of its value. The plunge continued to accelerate through the morning.
Shigeo Sekimoto, manager of Yamaichi Securities’ equities department, said a significant portion of the sellers today appeared to be institutional investors, such as insurance companies. Yoshio Shimoyama, a general manager at Nikko Securities, also said institutional investors--as well as individuals--were selling. But he reported their orders were relatively small.
Bank of Japan and Finance Ministry officials, however, told Japanese reporters that no signs of an institutional sell-off had appeared during the morning. Trading before the lunch break was light, with only 150 million shares exchanging hands. Although bank shares were targets of selling, only small transactions were reported.
Akira Okuhata of the Bank of Tokyo’s exchange department blamed today’s yen’s plunge on the Nihon Keizai newspaper report, a weakening of the yen in overseas markets over Japan’s weekend, and fears that so-called Structural Impediments Initiative talks would exacerbate U.S.-Japan relations. Negotiators are to meet today and Tuesday in Washington in their last session before a crucial interim report for the SII talks.
