Weak Financials Drive Nikkei 2.2% Lower

123jump.com Staff
18 Sep, 2008
New York City

Stocks in Japan fell on market jitters after a sharp fall in banks and brokerage stocks in the U.S. The overnight fall in the U.S. benchmark indexes of more than 4% unnerved investors. The Bank of Japan in a coordinated move with the U.S. Fed and four other central banks agreed to pump liquidity in the credit markets.

[R]5:00AM New York, 7:00PM Tokyo - Japan''s services demand fall 1.2% in July. The BoJ injects addition 2.5 trillion yen in liquidity. Stocks fall.[/R]

Stocks in Japan fell on market jitters after a sharp fall in banks and brokerage stocks in the U.S. The overnight fall in the U.S. benchmark indexes of more than 4% unnerved investors.

Market Sentiment

In Tokyo trading Nikkei 225 slid 2.22% or 260.49 to 11,489.30, and the broader Topix Index declined 2.1% or 23.75 to 1,097.68.

In the first section of the Tokyo Stock Exchange 9.4 billion shares worth 943 billion yen were traded and in the second section 374 million shares valued at 3 billion yen changed hands.

Of the Nikkei 225 stocks 67 rose, 155 declined and 3 were unchanged. Toto Ltd. led advancers in the index shares with a rise of 8.40%.

Japan Service Demand Increases 1.2% in July

The Ministry of Economy, Trade and Industry reported today that the indices of Tertiary Industrial Activity, which measures the amount households spend on telecoms, power and transportation, advanced 1.2% to 110.6.

Industries that contributed to the increase include wholesale and retail trade rising 2%; services gaining 2.1%; electricity, gas, heat supply and water spiking 6%; medical, healthcare and welfare increasing 1%; and transport surging 0.6%.

Conversely, industries that dragged on demand were information and communications falling 1.1%; finance and insurance sliding 0.8%; real estate declining 0.5%; learning supporting plummeting 2.8%; eating and drinking places, accommodations shedding 0.2%; and compound services falling 0.3%.

BoJ Pumps Addition 2.5 trillion yen

The Bank of Japan reported that it has released an additional 2.5 trillion yen in the financial system as credit conditions continue to deteriorate, especially after U.S. investment banks Goldman Sachs and Morgan Stanley fell sharply in yesterday''s trading.

Japan''s overnight loan rate had surged to 0.655% before BOJ''s intervention. Yesterday the central bank injected 3 trillion yen in order to stabilize the markets. The latest injection brings the cumulative amount of money released to the market to 8 trillion yen so far.

Goldman Sachs and Morgan Stanley Falls on Market Jitters

Morgan Stanley shares dropped as much as 44% before settling at 26% yesterday, while Goldman Sachs lost more than 35% before closing down 18%. The last two remaining independent brokerage houses are under assault after they took on excessive risks on their balance sheets. Ken Lewis, chief executive of Bank of America after recently agreeing to acquire Merrill Lynch said that Morgan Stanley and Goldman Sachs will find it difficult to survive as independent companies and may be acquired or merged with a banking institution.

Financial brokerage houses are not protected under the federal depository system and operate outside the regulatory regime. The brokers have been taking increasing leverage on their balance sheet to generate outsize profits in the last five years before the mortgage securitization market collapsed.

Credit market losses have since driven Merrill Lynch and Bear Stearns into emergency sales and also recently forced Lehman Brothers into filing a bankruptcy protection.

Gainers & Losers

Toto Ltd. led advancers in the Nikkei 225 index shares with a rise of 8.40% followed by rises in Sapporo Holdings of 7.67%, in Sumitomo Metal Mining of 7.18%, in Ebara Corp. of 6.67%, and Mitsui Mining & Smelting of 6.35%.

Commodity stocks gained after gold for immediate delivery rose 0.6% to US$868.65 and silver edged up 1.7%.

Sony Corp. led decliners in the Nikkei 225 index shares with a fall of 10.60% followed by losses of Nikon Corp. of 8.80%, in Mitsui Fudosan of 7.28%, in Daiwa Securities Group of 7.09%, and Fujikura Ltd. of 6.65%.

Sony Corp. fell after Goldman Sachs slashed the company''s rating.

Realty stocks also dropped as Japan''s overnight loan rate rose to 0.655% before the BOJ market intervention. Mitsubishi Estate skidded 6.16% as a result.

Resona lost 6.44% as well.