Posted on: Saturday, December 29, 2001
Nikkei average off nearly 25 percent in 2001
By Gary Schaeffer
Associated Press
TOKYO — The ceremony marking the last trading day of the year on the Tokyo Stock Exchange was a bit different this time: The public was invited to join exchange officials in a traditional round of applause.
And no wonder. Cheer was in desperately short supply in 2001 on Asia's largest market, where the benchmark Nikkei Stock Average tumbled 23.52 percent over the last 12 months to finish at its lowest year-end mark since 1983.
Investors will have until Jan. 4 to try to forget a year in which Japan slipped into its third recession in a decade, markets worldwide woke up from dot-com dreams and even the U.S. economy ran out of gas.
As the clapping died down on the exchange floor, however, there didn't seem to be much to look forward to.
"The problems Japan has aren't like wine. They don't get better with age," said Kenneth Courtis, vice-president at Goldman Sachs Asia in Tokyo. "They're like junk — they rust."
Just before markets opened yesterday, the government announced that unemployment rose to a record 5.5 percent last month as more workers were let go by companies whose profits have been squeezed by falling prices and decreasing exports.
But observers say the ugly numbers and gloomy news coming out of the world's second-largest economy are less worrying than signs that Prime Minister Junichiro Koizumi's policy initiatives are grinding to a halt.
"If Japan's problems were (only) economic and financial they would have been solved a long time ago," said Courtis. That's why investors "should expect to see more of the same" next year, he warned.
The charismatic prime minister took office in April with an ambitious agenda of economic and political reforms including privatizing government enterprises, cutting pork-barrel spending, removing regulatory barriers to competition and stabilizing a banking sector burdened with bad loans.
But Koizumi has run into fierce resistance from conservative lawmakers in his own Liberal Democratic Party, who insist that his economic medicine is too bitter for a nation languishing in a decade-long slump.
Mounting skepticism about the prime minister's ability to transform his popularity into policy has been reflected in all financial markets in recent months.
The yen sank to a new three-year low against the dollar in Tokyo on Thursday. The dollar was quoted at 132.05 yen, its highest level since it bought 132.58 yen on Oct. 6, 1998.
Unlike Americans who nervously watch every pullback on Wall Street, most Japanese haven't felt the impact of falling share prices on their finances. Less than one person in ten owns stock in Japan — versus about half of American households — in part because playing the market is widely seen as form of gambling inappropriate for working people.
But the downturn has dealt a heavy blow to the balance sheets of Japanese companies, which have traditionally held each other's stocks to cement their business relationships. It's been especially bad news for the nation's banks, which need assets to pay the enormous cost of disposing of bad loans estimated at about $327 billion.
Investors found some encouragement yesterday in media reports that Japan's prime minister is finalizing a new prescription for the economy that will include injecting more public funds into its banking system.
The Nikkei rose 85.01 points, or 0.81 percent, to 10,542.62 during yesterday's half-day session. Still, it was the lowest year-end closing figure since 1983, when the blue-chip index ended at 9,893.82.
Though details of the plan remained vague, Koizumi's finance minister emphasized the need to offer long-suffering markets something — anything — in the way of hope.
"It is important and appropriate that the prime minister dispel fears and concerns" about Japan's financial system, Finance Minister Masajuro Shiokawa told reporters.
