Nikkei rebound hardly eases concern

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Businessmen checked stock prices at a Tokyo brokerage yesterday as the Nikkei Stock Average plummeted to a 19-year low, and closed trading down 339.55 points, at 8,668, despite new government steps toward banking reform. Associated Press

The benchmark 225-issue Nikkei Stock Average opened yesterday 24.22 points up, or 0.28 percent, at 8,712.22.

It closed yesterday 339.55 points down, 3.76 percent, at 8,668 — its lowest finish since June 16, 1983.

The rebound isn't expected to last, as traders have come to distrust government moves to stop deflation or price falls that cause unemployment and economic contraction. But the Nikkei likely will find footing at the 8,500 level, traders said.

The government might have no choice but to assemble drastic measures to support the financial system if the Nikkei falls below 8,400, analysts warned.

Yesterday's plunge came days after Prime Minister Junichiro Koizumi named hard-nosed reformer Heizo Takenaka to head the Financial Services Agency with a mandate to stop propping up weak banks.

Takenaka had pledged over the weekend that no bank would be considered "too big to fail." In the week since he took over, bank stocks have fallen more than 16 percent.

Corporate leaders warned yesterday that further declines would jeopardize the industrial sector. "I'm concerned that we might see a vicious cycle" if the Nikkei falls to 8,000, said Hiroshi Okuda, chairman of Toyota Motors and head of the Japan Business Federation.

At that level, he said, the stock portfolios held by the nation's giant banks and insurance companies would no longer show profits, and consumer sentiment would grow even more bearish. "I'm watching (the economy) with a greater sense of crisis," he added.

Stock markets in Seoul, South Korea and Taipei, Taiwan, responded by hitting their lowest levels of the year yesterday. Analysts said investors were worried not only about the possibility of a wave of corporate bankruptcies, but also that U.S. consumers might spend less this Christmas.

It's unclear what impact Japan's stock-market turmoil will have on the United States or world economy, but many analysts say it is not likely to be drastic.

While some U.S. exporters, such as makers of computers and semiconductors, might suffer from an economic slowdown in Japan, the effect on the U.S. economy would be limited. American exports to Japan — about $55 billion a year — represent less than 1 percent of the U.S. economy.

"There will be a negative impact, but it will be relatively small," said Arthur Alexander, a visiting professor of Japanese economics at Georgetown University in Washington.

More important, he said, would be long-term gains for the Japanese, U.S. and global economies if Japan resolves its banking problems.