Downturn in Tokyo Stocks Arouses Growing Concern : Economics: Investors, economists are worried. A small recovery leaves the market below 20,000 mark.
The shellshocked Japanese stock market recovered slightly today after a 618-point dip Monday, but investors and economists remained worried that sliding share prices would sap the strength of some of the nation’s biggest companies and plunge the economy into a serious downturn.
The Nikkei average rose 80.47 points today to close at 19,917.63--well below the psychologically critical 20,000-mark. That barrier was broken Monday when the average fell to 19,837.16. The Nikkei is at its lowest level in five years.
The yen also recovered somewhat after falling against the dollar Monday in reaction to the stock market decline. And the U.S. market opened on a cautious note in reaction to events in Tokyo.
The Dow Jones industrial average rallied late Monday afternoon to close up 0.45 at 3,236.36. Although the Nikkei’s fall was widely expected, it still set traders and analysts on edge. Some feared the decline would spread to other stock exchanges worldwide.
Ministry of Finance officials offered assurances that Monday’s disturbing fall was a temporary reaction to last-minute stock sales by Japanese companies prior to closing their books for the fiscal year that ends March 31. The Bank of Japan also downplayed the drop, insisting the move did not require a response from the central bank.
But many market observers are far less sanguine. They stress that the market’s plunge is beginning to crimp corporations’ ability to maintain investments, a key engine of the Japanese economy. And some are calling for strong government intervention to put the economy back on track.
“There is great anxiety about the economy and corporate earnings,” said Kosaka Uano, director of research at New Japan Securities.
The Japanese economy continues to grow, but at a much slower pace, resulting in a recession-like impact on corporate earnings. Key companies like Sony Corp., the consumer electronics firm with several investments in the United States, including the former Columbia Pictures, have reported sharp declines in pretax profits. And in April, when many Japanese companies announce year-end results, more are expected to report declining profits.
“The Japanese economy is going to remain in trouble for at least two years,” Masashi Kojima, president of telecommunications giant NTT Corp. told a small group of foreign reporters today. With Japanese banks and real estate companies struggling to adjust to bad loans related to sharply lower stock and land prices, “it will take two years to find out who will survive and who will die,” Kojima said.
Although NTT will use much of its 1992 investment budget of $16 billion in the first half of its fiscal year to help the government stimulate the economy, Kojima doubted such investments would have much of an impact. “We have a serious psychological problem. Companies are afraid of investing and people are holding back on consumption,” Kojima said. “People aren’t drinking in the Ginza bars, and nobody’s building golf courses or buying foreign real estate.”
Low stock market prices have already shrunk the value of banks’ large stock holdings and forced them to cut back loans to meet capital reserve standards set by the Bank of International Standards. Over the past year, bank lending has actually declined for the first time in four decades, according to Kenneth Courtis, senior economist at Deutsche Bank Capital Markets.
The stock market has also suffered from a year of corporate scandals, including a series of securities scandals that have contributed to investor distrust in the market.
Government officials were quick to assert that the market drop was transitory. “The market is not falling for structural reasons,” Finance Minister Tsutomu Hata told reporters Monday, suggesting that “some people believe now is an excellent time to buy.”
Ministry of Finance officials blamed the market drop on the move by corporations to liquidate tokkin , stock investment trusts. The tokkin have been unpopular because of their poor performance in recent years.
Because Monday was the last day stocks could be sold with the sale recorded in fiscal 1991, some observers believe the worst of the selling pressure is over. Some foreign analysts, who have been promoting Japanese stocks at current levels, are fairly upbeat. “The bear market ends when the market reaches its low,” said Robert Zielinski, analyst at Jardine Fleming Securities. “Now we are beginning to see a firm bottom.”
Zielinski noted that many stocks of top Japanese companies are selling at their lowest price in 10 years. “With all the investments these companies have made, these companies are certainly stronger today than they were a decade ago.”
But Uano of New Japan Securities said the government must take dramatic action to snap the economy out of its gloomy state.
Yoshiro Mori, chairman of the ruling Liberal Democratic Party’s Policy Research Council, said the Bank of Japan should give the economy a bigger boost by cutting its discount rate.
