Nikkei closes below 9,000 on bank fears

Tokyo stocks continued their decline Thursday as the benchmark Nikkei average closed below 9,000 for the first time in 19 years, reflecting concern that aggressive bad-loan disposal will increase deflationary pressure on the economy.

The 225-issue Nikkei average lost 112.90 points to close at 8,936.43, the first time the key index has finished below 9,000 since Aug. 12, 1983.

The Topix, which tracks all first section issues on the Tokyo Stock Exchange, shed 9.64 points to 883.59.

In addition to recent weakness in U.S. stocks, there is growing concern that an aggressive attempt to clear banks of nonperforming loans, while viewed positively from a long-term standpoint, will accelerate bankruptcies, job cuts and depress consumer spending.

“Market players began wondering whether the government has any measures to ease the short-term, serious pain that would develop in line with a cleanup of the banking sector,” said Norihiro Fujito, senior investment strategist at Mitsubishi Securities Co. “What the market is asking for before major surgery is a clear picture from the government detailing a fresh economic stimulus plan that would absorb shocks from more corporate bankruptcies and greater deflation.”

Bank issues sagged nearly 5 percent as major banks extended their losses due to growing concern they will be forced to swallow sizable writeoffs that will further accelerate corporate restructuring.

Many market players believe that more debt-ridden companies will be forced to fold under the guidance of Heizo Takenaka, the new financial services minister appointed Monday by Prime Minister Junichiro Koizumi.

The appointment of Takenaka, who concurrently serves as minister in charge of economic and fiscal policy, was widely taken as a sign Koizumi intends to take more aggressive measures to fulfill his pledge of solving the bad-loan problem by the end of fiscal 2004. Asked about the Nikkei’s plunge, Chief Cabinet Secretary Yasuo Fukuda maintained that the economy is still on a recovery path, although the pace has been quite slow.

“Share prices are determined by various factors,” the government’s top spokesman said at a regular news conference. “We hope Japan’s economic fundamentals, which remain sound as shown by various economic indicators, will be reflected in share prices.”

If the stock market slump continues, Koizumi will come under greater pressure to produce measures to boost the economy, including extra fiscal spending.

Fukuda acknowledged the need for pump-priming and said the issue will be tackled in cooperation with the Bank of Japan. But the government is not ready to draft an extra budget for the current fiscal year, he said.

Tax cut called for

Hiroshi Okuda, chairman of the powerful Japan Business Federation (Nippon Keidanren), urged the government Thursday to promptly implement antideflation measures in the wake of the continued slump in share prices.

The weakness of stocks reflects “the emergence of moves to accelerate the disposal of bad loans before the introduction of antideflation measures,” Okuda told reporters.

“Tax system reform is needed now,” Okuda said. “I don’t think a supplementary budget (for fiscal 2002) is necessary at this stage.”