The Japanese economy lurched towards a new crisis yesterday as its stock market plunged to a 16-year low and its trade surplus fell sharply. The Nikkei index of the top 225 shares dropped 2.51 per cent to 11,609.63, its lowest close since 7 January 1985, when it closed at 11,575.52.
The trade surplus shrank 36 per cent in June from a year earlier as exports fell. Meanwhile activity in all industries fell 0.9 per cent in May, the Economics Ministry said. The fall on the Nikkei underscored expectations that Japan would record a second quarter of contraction in the three months to June, a technical definition of recession. The plunge in share values was driven by banking stocks amid fears that the government would not succeed in tackling the problem of bad debts.
The Prime Minister, Junichiro Koizumi, said the government would continue with his reform agenda regardless of "the fluctuation of the market indicators". Mr Koizumi was named premier in April amid popular support for reforms that included helping banks to write off hundreds of billions of dollars in bad debts.
The Nikkei has fallen in four of the past five years, and is down 16 per cent this year and two-thirds from its December 1989 peak of 38,915.
The Japanese Finance Minister, Masajuro Shiokawa, called on investment firms to make more of an effort to sell mutual funds to buoy up the market. Asked whether he would urge the Bank of Japan to cut interest rates, he said: "I will express my hopes on monetary policy, but the bank is an independent institution and I think it's a little bit difficult to persuade it to change its policy. If the economic decline becomes more severe I think we'll need to consider comprehensive measures to support the economy."Reuse content