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Nikkei ends at 16-yr low, bank slide darkens mood

By Nathan Layne

TOKYO, July 23 (Reuters) - Tokyo's Nikkei average slid to a 16-year closing low on Monday, undercut by falls in Japan's major banks on fears a worsening economy and policy stagnation would batter their bottom lines.

``Investors can feel the market slipping right through their fingers. When that happens, they dump the large caps, and banks are the prime target,'' said Takahashi Yamazaki, chief investment officer at Tokio Marine Asset Management.

The Nikkei lopped off 2.51 percent or 298.76 points to 11,609.63, its lowest close since January 7, 1985, when it finished at 11,575.52.

The tech-sensitive average is now less than a third of its value at the peak of the asset-inflated bubble in late 1989.

Dragged down by several large-cap banking and telecoms stocks, the broader TOPIX index (^TOPX - news) shed 2.63 percent or 31.49 points to 1,163.76, falling for a sixth straight session. The capital-weighted index is now a hair's breadth above a year-to-date closing low of 1,161.97 marked on March 14.

In a broad-based decline, decliners overwhelmed advancers 1,107 to 262 the first section of the Tokyo Stock Exchange.

Volume was moderately active with 637.54 million shares changing hands, the highest total since July 13.

BANKS UNDER FIRE

Mizuho Holdings Inc , the world's largest bank by assets, plunged 7.27 percent to 421,000 yen, as traders lament at Japanese Prime Minister Junichiro Koizumi's failure to present concrete steps to clean up the banking sector's bad loans at a weekend summit of the Group of Eight (G8) nations.

``We're right back to where we started before Koizumi. Hope is dissipating, if not disappearing that the new cabinet will successfully revive the banks,'' said Masayoshi Okamoto, a trader at Jujiya Securities.

``Focus is now completely on the wiltering economy, which only exacerbates the financial system's woes. Against this backdrop, there's no question that banks and the broader market have some room to fall.''

UFJ Holdings dropped 7.85 percent to 528,000 yen, while fellow mega-bank Mitsubishi Financial Group plunged 8.07 percent to 889,000.

As part of Koizumi's reform plans, banks are set to scrub bad loans off their balance sheets in two to three years. Market participants want more details about how this will be achieved and are concerned that increased write-offs will spark a rash of bankruptcies, dent an economy already flirting with a recession, and hurt banks' lending business.

WHAT TO DO?

With the market plumbing lows and Japanese government bonds showing signs of weakness, traders are worried that latent profits on banks' securities portfolios may turn to latent losses and that the lenders will have trouble finding an avenue to secure profits.

The yield of key 10-year JGB briefly rose to a three-month high of 1.39 percent before easing in the afternoon.

On the policy front, Japanese Finance Minister Masajuro Shiokawa said on Monday he was very worried about persistent weakness in Tokyo stocks and has asked the brokerage industry for help in boosting the market through mutual funds.

Bridgestone Corp was hammered by news U.S. officials have moved toward forcing another recall of its U.S. unit's tyres. Also coming under pressure from an investment downgrade by Dresdner Kleinwort Wassertein, the embattle tyre maker lost 15.7 percent to 1,073 yen.

TECHS IN TROUBLE

Mirroring falls in major U.S. tech stocks after a slew of dismal corporate results and a bleak forecast from software giant Microsoft Corp (NasdaqNM:MSFT - news), high-tech bellwether Sony Corp lost 1.96 percent to 7,020 yen, paring Friday's 2.29 percent rebound.

A number of major U.S. and Japanese firms including Sony, Matsushita Communication Industrial Co Ltd and NEC Corp are due to announce second quarter earnings later this week. Traders are expecting little positive surprise.

PC and chipmaker NEC lost 1.61 percent to 1,526 yen, while top cellphone handset maker Matsushita Communication Industrial chopped off 10.07 percent to a three-year low of 4,020 yen.

In the communications sector, Japan Telecom Co Ltd dived 9.54 percent to 512,000 yen after Nikko Salomon Smith Barney downgraded its investment rating on the nation's third-largest carrier.

-- (M@rket.trends), July 24, 2001

Answers

In the 80s Japan was considered invincible. "Japan Inc" was taking over the world. Japan Inc was buying America.

The 90s was the American decade. The stock market soared and soared. We were in a "new paradigm"; we now had an "information economy".

The common denominator? Murphy's Law.

-- Lars (larsguy@yahoo.com), July 24, 2001.