Bank of Japan injects cash into flailing markets

Japan's central bank today injected a total of 2.5 trillion yen (US $24 billion) into money markets and issued a statement vowing to take measures to maintain stability in the country's financial markets.

"The Bank of Japan will carefully monitor recent situations surrounding the US financial institutions and their influences, and will continue to strive to ensure smooth settlement of funds and maintain stability in financial markets through measures such as appropriate money market operations," central bank Gov. Masaaki Shirakawa said.

Japan's benchmark stock index fell to a three-year-low amid investor anxiety about a global financial crisis with Lehman Brothers' bankruptcy and the takeover of Merrill Lynch.

The Nikkei 225 stock average shed 605.04 points, or 4.95 per cent, to 11,609.72 — its lowest close since July 2005. The broader Topix fell 5.07 per cent to 1,117.57.

Japanese markets were closed for a national holiday on Monday, when news first broke about the dramatic events on Wall Street.

Seichi Miura, strategist at Mitsubishi UFJ Securities in Tokyo, said already weak investor sentiment had been further shaken. He predicted extremely volatile markets ahead.

"The market just hasn't been able to shake off an overall downward trend," he said.

Indeed, the crisis appeared to be far from over. American Insurance Group, the world's largest insurer, was fighting for its very survival amid reports that it was seeking emergency funding of $40 billion to avoid a credit rating downgrade.

The Tokyo Stock Exchange halted securities and derivatives trading by Lehman Brothers a day after Japan's financial watchdog ordered its local unit to suspend operations.

Earlier today, the Japanese unit of Lehman Brothers Holdings Inc. requested bankruptcy protection at a Tokyo court after the 158-year-old firm filed for Chapter 11 bankruptcy in New York yesterday.

Financial issues took a particularly heavy beating as investors unloaded shares in institutions named as some of Lehman's biggest lenders, including Aozora Bank Ltd., Mizuho Corporate Bank Ltd., Shinsei Bank Ltd. and Mitsubishi UFJ Financial Group, Inc.

Aozora, a midsize Tokyo-based bank, lost 15.8 per cent to 171 yen, even as the company in a statement sought to reassure markets that its net exposure could be reduced to less than US$25 million compared with an initially reported figure of US$463 million.

Mizuho Financial Group, Inc., the parent company of Mizuho Corporate Bank, retreated 10.7 per cent to 418,000 yen.

Shinsei lost 16 per cent to 314 yen, and Mitsubishi UFJ Financial Group tumbled 7.7 per cent to 792 yen.

A tumbling dollar compounded the heavy sell-off, dragging down major exporters such as auto makers and consumer electronics companies.

Toyota Motor Corp. declined 3.76 per cent to 4,610 yen, home appliance producer Matsushita Electric Industrial Co. fell 6.18 per cent, and camera maker Canon Inc. dived 10.07 per cent to 3,840 yen.

The dollar was trading sharply lower at 103.71 yen today in Asia, compared with mid-107 yen levels Friday. The euro stood at US $1.4256 from US$1.4262.