Nikkei plumbs new low as rout rolls on
Reviewed By Hitoshi URABE
"Nikkei plumbs new low as rout rolls on"
Stock prices are on a roller coaster ride again, and this time, at a worldwide scale. As the steep downhill could not continue forever, and it is a nature of the market to overshoot, on a day-to-day basis the prices could head for either direction, or calm down. However, the volatility of the market is a concern, and it is of a more concern if the overall direction is a spiral downward trend of stock prices around the globe, which is a real possibility considering that the plunge this time in Japan was apparently not triggered by any specific cause.
Japan's economy was supposed to be on a recovering track. The GDP growth showed a positive figure for the April-June quarter thanks to increase in export, especially to U.S. But just when Japan was to get a hold of pace of recovery, the U.S. economy lost steam, and as the export to U.S. began to slow down, the total export decreased during the summer months, muddling the course of Japan's recovery.
There were a number of technical reasons for U.S. market to plummet during past week, such as a downward revision of the performance of a major IT company, and unveiling of doubts of a major bank getting involved in a corporate scandal. But Japan's market did not need to follow suit, and at that magnitude, as there was no specific factor in Japan to do so. Then the unexpectedly large price drop in Japan's market induced the drop in NY market the following day, completing the spiral.
The stocks most heavily hit were understandably those of export industries. Then banks were sold as they were regarded as the most vulnerable to decreasing stock prices. At the end of September which is the end of fiscal half-year, banks are required to revalue their holdings of stocks, which would reveal their weak capital bases.
In March this year facing an annual fiscal end, stock prices in Japan were hovering low, and the authorities introduced a queer rule to prohibit short-selling of stocks. It actually worked, and the stock prices rose. The authorities were almost ecstatic in self-applauding the measure. It assisted banks to close their books with decent figures, but at the cost of skewing the market and the loss of faith in the authorities' behaviors toward the market. It consequently hindered the self-recovering ability of the market when the stock prices in early summer weakened.
The authorities might be tempted to come up with a unique plan to tide over this September, again. This time, however, it might be better for them to face reality and start using their powers for Japan's real recovery.
As an additional note, it is perhaps an irony that the Japanese Government Bond prices have shown strength, despite consecutive lowering of credit ratings by Moody's and S&P, which is mainly due to the fact that funds recovered from the stock market were shifted to the bonds.