Nikkei Faces Test of Base Support Level

Observers who follow technical patterns are keeping a close eye on Japan’s benchmark Nikkei-225 stock index.

The Nikkei plunged 2.2% on Monday to close below 15,000 points as more bad news plagued the world’s second-largest economy and sent jitters through Asian markets. The index traded briefly below 14,664--its lowest close this year, which it hit Jan. 12 as Indonesia’s currency was collapsing.

Now that it has broken through the psychologically important 15,000 mark, chart watchers will be eager to see whether the index tests--or falls through--its base level of support at 14,500, a range it has touched several times in the 1990s before recovering:

* In 1992, for example, the index declined to about 14,800 in mid-August, then zoomed to about 18,500 by early September.

* In 1995, the Nikkei fell to its decade low of 14,485 on July 3 and then bounced back.

* On Jan. 12, it sank to a 1998 low of 14,664 and then swung higher.

* The index dropped to its recent low of 14,715 on June 17 and then recovered.

Among the shadows contributing to the latest gloom: growing Japanese bankruptcies, lower retail sales, the overhang of Russia’s problems, weakness of the yen, last week’s dismal Wall Street showing and a growing belief that Japan is so politically paralyzed that it cannot begin to reverse its banking crisis any time soon, no matter what the new administration of Prime Minister Keizo Obuchi says.

Analysts said Monday’s fall could spell the beginning of another bad week in Asian markets. “It doesn’t look like this trend is going to be broken any time soon,” said Mike Morizumi, equity analyst with Merril Lynch Japan.

Reflecting a growing crisis of confidence in Japan’s financial system, several banks saw their shares drop sharply. Bank of Tokyo-Mitsubishi fell to a 52-week low, while Sumitomo Trust & Banking, Sakura Bank and Mitsui Trust also fell. Leading consumer companies such as Sony Corp. and Fuji Photo Film and Toyota Motor Corp. also stumbled.

“We’re caught in a vicious circle,” said Hitoshi Yajima, director of Tachibana Investment & Management. “Asia drags down the U.S., which drags down Japan.”

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Back to Its Base Level

Japan’s benchmark Nikkei 225-stock index has dropped to around the 15,000 level several times since 1992 before recovering each time. Quarterly closes of the Nikkei since 1985, and latest, in thousands:

Monday: 14,794.66

Source: Reuters