Japanese banks scare rocks Nikkei (THERE MAY BE TROUBLE AHEAD...)

The Daily Telegraph ^ | September 4, 2002 | George Trefgarne and Colin Joyce

[MadIvan]

The Nikkei index of leading shares in Japan slumped to its lowest level for 18 years yesterday as concerns over the health of Japanese banks echoed round the world financial system.

With the anniversary of September 11 coming up next week and diplomatic rhetoric flying between the West and Iraq, investors are naturally nervous. Shockwaves from Japan were felt in London, where the FTSE 100 index lost 152.3 points to close at 4,028.6.

Wall Street also dropped as a survey of purchasing managers showed that US manufacturers are only just recovering. The Institute of Supply Management said its index for August was 50.5, unchanged on July and a point lower than hoped for by analysts. The Dow Jones index finished down 355 points at 8,308.

The dollar also fell sharply, as funds flooded into the euro and the pound. This allowed the euro to strengthen by over a cent to near parity with the dollar, closing at $0.9966. The pound also gained over a cent, closing at $1.5635.

But it was Japan that held centre-stage as the Nikkei index closed down 304.59 at 9,217.04, a level not seen since 1984. Japanese government bonds - the world's largest market as Japan borrows heavily - fell slightly to yield 1.18pc.

Deflation is persistent, industrial production is down and market sentiment in Tokyo has also been damaged by corporate scandals. This week, executives of Tokyo Electric Power were forced to resign after it emerged that the company had falsified safety data at its nuclear power reactors.

Mitsui, Japan's second largest trading company, is under investigation for bribing a Mongolian official. The food industry has also been hit by scandals.

Business reporters on Japanese television yesterday reflected that they were at junior high school when the Nikkei was last so low. The biggest fallers were Japanese banks, which are labouring under huge bad debts. Already, the government has said it will not guarantee deposits worth more than £75,000, but this ceiling will be lowered further next March.

The governor of Tokyo district spread alarm about the banks by saying yesterday he could move the capital city's £10 billion municipal cash balances out of the biggest Japanese bank, Mizuho Holdings, and deposit them at the US giant Citibank.

Mizuho shares fell 10pc as governor Shintaro Ishihara said a probe he had orderered suggested regulators are "hiding" problems in the banking system.

Mr Ishihara said the situation in Mizuho must improve. "If the conditions are good, we will do business with anybody, including foreign banks," he said. "Citibank has the best record here in Japan, so it could be one of the candidates."

Japan has been close to recession for the best part of a decade and the Tokyo market has been buffeted by bad news in the last few days. Last week, official estimates of first-quarter economic growth were revised down from 1.4pc to zero.

Robert Brooke, of Brooke Research Institute, said: "I think what Ishihara said is worrying because it shows that a Japanese official thinks the banking system isn't robust. The world has given up on Japan but every now and then investors are forced to sit up and take notice.

"Japan is the world's largest saver and supplier of capital. If your banker goes bust, you have to worry."

[MadIvan]

It's hard to know where the problems end and the blessings begin for Japan. Koizumi has been a disappointment in terms of his willingness to embrace and push forward reform; perhaps some other government would make a difference - Japan had better pray, and the rest of us by extension, that the wait is not too long.

Regards, Ivan

[MadIvan]

Bump!

[Mulder]

So much for the wonders of central planning....

[nopardons]

You're just full of good news lately. YUCK !

But seriously, Japan thought that inaction, would somehow reinflate their bubble. That was wrong ( as the rest of the world knew ) and perhaps, a new government will do what should have been done, there, quite a long time ago.

[chance33_98]

The governor of Tokyo district spread alarm about the banks by saying yesterday he could move the capital city's £10 billion municipal cash balances out of the biggest Japanese bank, Mizuho Holdings, and deposit them at the US giant Citibank.

And what will CitiBank do with the money?

[Red Jones]

bump

[Nuke'm Glowing]

Here's some cheery news from Yahoo Finance:

Japan-Nikkei 225 1:13am 9,013.83 -202.17 -2.19%

Let the good times roll. Our markets won't be dull this week, especially if the volume continues to be so thin.

[Lucius Cornelius Sulla]

And what will CitiBank do with the money?

If you have been reading the financial news, Citigroup (parent of CitiBank) has been tanking, may be involved in the financial scandals. Looks like the Japanese retain their bad judgement.

[MadIvan]

Japan shows precisely the danger of having a single party in power for too long. And because Koizumi had a "funky" hair style the voters thought, somehow, he might be different even though he was part of that party. Forget it - Japan needs a change in a big way.

Regards, Ivan

[Nuke'm Glowing]

Quite correct. But I don't think that the Feds will allow "C" to tank. They will adopt the Japanese model and funnel free money to them to stay afloat. So that Citigroup never has to eat all of the bad loans nor disclose the shady dealings they have been involved with for over 20 years.

[Dialup Llama]

There follow thru selling! Its not going to be much fun. All week. The Japanese have given up. Now its getting worse just when they thought it absolutely couldn't get worse. Perhaps we'll see what real, secular (not trading) capitulation is all about. Won't be fun at all.

[Mo1]

and deposit them at the US giant Citibank.

Citibank??? .. What are the nuts

[Lucius Cornelius Sulla]

They will adopt the Japanese model and funnel free money to them to stay afloat.

I don't know, there wasn't even a hint that the government would bail out Enron, Global Crossing, Worldcom, or the possible Time-Warner AOL failure.

[paul544]

It still amazes me to no end, how KKKlinton jumped ship at PRECISELY the right moment. Not having to answer for the smoke and mirror economy of the late 90's.

[nopardons]

When government ( as in Japan ) is the partner of commerece, and banking, there is always a disaster. Japan was never truly Democratized, nor Westernized ; not to mention modernized. Most of it was just superficial.

Now comes the reckoning.

[Nuke'm Glowing]

Especially since they are about to break through the lower Bollinger Band. Not a good portent of this week's market action, especially with 9-11 coming up and all the instability in our markets.

[hove]

Watch Japan embrace the military solution. It is the next step in the progression. It will work...but it will be awful...and it will upset the world balance of power. It's a shame that they could not rise above the corruption. They had the apple in their hand......and they let it rot. What a shame.....

[Nuke'm Glowing]

There's a huge difference between an Enron and a money center bank. The implications of a Citigroup failure would slice 1000 points off the Dow. That is just never going to be allowed to happen, not in our lifetimes.

[nopardons]

Obviously !

[Nuke'm Glowing]

" Now comes the reckoning."

Such a phrase should scare you if you look to Wall St. also....