Nikkei Index Hits New 20-Year Low; Report Points to a Few Bright Spots

There are bear markets, and then there are bear markets.

Japan’s main stock index fell to a fresh 20-year low Monday despite a government report on the economy that pointed to a few bright spots.

Some analysts said the selling was led by corporate pension funds struggling to raise cash.

The Nikkei index of 225 blue-chip stocks fell 64.39 points, or 0.8%, to 7,752.10. It was the lowest close by the index since Nov. 17, 1982.

The Nikkei is down 9.6% this year. By contrast, the U.S. Standard & Poor’s 500 index is up 0.6%. The average European blue-chip stock is down 4.3%.

Japan’s economy overall remains flat, the government said Monday, leaving its assessment unchanged amid global uncertainties.

Corporate capital investment is showing continued signs of picking up, the government said. Consumer spending appeared to flag in March but now was in a “generally flat” trend, it said.

Data firm Teikoku Databank said Monday that the number of business failures in the 12 months ended March 31 was down 5.6% from the previous year, though the figure still was the fourth-highest of any year since World War II.

The firm warned that bankruptcies could surge again if share prices continue to slide, weakening the financial health of stock-owning banks, insurance companies and industrial companies.

Amid broad disappointment about the lack of government action to prop up the stock market, the head of Keidanren, Japan’s powerful industrial association, called Monday for a tax freeze on capital gains.

Under a joint plan, Japan’s three business lobbies, including Keidanren, also called for a cut in the inheritance tax on stock purchases in fiscal 2003 and a suspension of taxation on dividend income to help calm investors.

Government spokesman Yasuo Fukuda promised authorities would look into the ideas.

But many investors remain gloomy. “There is no reason to buy equities right now,” said Ryoji Musha, chief strategist at Deutsche Securities. “Neither a cyclical recovery nor structural [economic] reform is possible.”

One investor, however, appears to think the opportunities are compelling: The California Public Employees’ Retirement System said Monday that it will invest $200 million in a Japanese restructuring fund that will take stakes in companies viewed as undervalued or ripe for restructuring.

The fund marks the pension giant’s second foray into turnaround funds specifically targeting Japan, where corporate management traditionally has been shielded from investor pressures to reform.