Posted on 09/03/2002 10:24:18 PM PDT by 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."
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