Investors' worries about the Barings bank scandal may have eased a bit for the moment here, but there remain plenty of other reasons why the key Tokyo stock index--despite a recovery in Japan's economy--has fallen to a 15-month low.
Consider the fall of the dollar, which in early Asian trading today hit another post-World War II low against the yen, an ongoing blow to Japan's all-important exporters. The fact is that where the markets are concerned, just about everything bad that could happen--not least of which was the catastrophic Kobe earthquake--has happened.
And for many erstwhile investors these various factors hardly matter because they've lost all interest in stocks. The issue for investors such as Tokyo housewife Hisako Arai, she said, isn't whether the Japanese economy is recovering, but rather that she still suffers from the "personal darkness" of her heavy stock market losses.
Never mind that many analysts now believe Japanese stocks are undervalued. Says Arai, who once had several million dollars invested: "For me to buy stocks now would be absurd."
With the heady days of Japan's "bubble economy" a distant memory, the market is desperately awaiting the return of private investors such as Arai along with more optimistic institutional players.
The 225-stock Nikkei index, jolted by the collapse of the British merchant bank Barings, fell to a 15-year low last week, recovered some ground, and then fall back again in early trading Monday to 16,914. Traders bravely declared that the Barings episode was over as far as the market was concerned.
But stocks are down about 14% since the beginning of this year, and there are numerous reasons beyond Barings. The most critical as this week opened was the yen's strength against the dollar, which continued its decline despite international efforts to bolster it.
Central banks in the United States, Japan and Europe agree that a stronger dollar is desirable, Japanese Finance Minister Masayoshi Takemura said Sunday. But he said dollar-buying intervention by the central banks "has not been effective yet. We have to cope with this problem after the weekend."
Indeed, early today the dollar fell as low as 92.77 yen.
A strong yen hurts the exporters that power Japan's economy by reducing the yen value of dollar-denominated sales and pressuring them to raise prices abroad.
The Jan. 17 Kobe earthquake not only upset some firm's profit projections, but also led to a shift of government-controlled postal savings and pension funds out of stocks toward the reconstruction effort.
And the recent rally on Wall Street has further depressed Japanese stocks by prompting some players to pull money out of Tokyo to invest in New York.
More fundamental factors, such as concerns about the strength of Japan's recovery and questions about the ability of the financial system to cope with "post-bubble era" bad loans, have further undermined stock prices. In recent weeks, controversy over a government bailout plan for two insolvent Tokyo credit unions has threatened to escalate into a political scandal that could have wide-reaching effects.
The cumulative effect has discouraged many ordinary Japanese who once played the market. That helps account for the seeming paradox of a growing economy, sharply improved corporate profits and falling stock prices.
"I think individuals are much happier to buy a car, refrigerator or home than to commit funds to the stock market," said Jesper Koll, head of market and economic research at J.P. Morgan in Tokyo.
"Many strategists have liked to point to the (potential) return of the individual investor as a source of buying power," Koll added. "What we see is car sales rising, but stock market investments are very, very low on the consumer's priority list. We haven't started a new era."
It isn't just individuals who are unwilling to bid up stock prices. Institutional investors also lack confidence. That is partly because even though the Japanese economy is growing again, the pace of growth this year is generally expected to be only an anemic 2% or so.
Maintaining the stability of Japan's national pension system and government finances, and solving the banking system's bad loan problems, all require steady annual economic growth of at least 3%, said Hirohiko Okumura, chief economist at Nomura Research Institute.
Japan's national pension system, for example, is run on the assumption of a 5.5% return on investment, and the national government's long-term budget calculations assume growth of 5%, Okumura said. If Japan remains stuck at less than 3% growth, the present economic structure cannot remain healthy, he said.
Times researcher Megumi Shimizu in Tokyo contributed to this report.
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Japanese Stocks Defy Recovery
Despite improvements in Japan's economy, the Tokyo stock exchange's Nikkei-225 index stands at a 15-month low. Analysts blame the Kobe earthquake, the weak dollar, the recovery on Wall Street and other factors. Monthly closes of the Nikkei, except latest:
1995 (Friday): 17,039,62