The sub-prime gloom on Wall Street spread to Asia yesterday triggering a sell-off in Tokyo which sent stocks to a 15-month low.
Analysts said investors had been spooked by a strong yen and falls in the US on Friday on the back of fears of further banking losses.
Only a handful of shares rose in Tokyo as the yen jumped to an 18-month high against the dollar, putting pressure on the shares of exporters.
The Nikkei fell 2.48 per cent to 15,197.09, its lowest close since 27 July last year, while the broader Topix shed 2.54 per cent to 1,456.4, the lowest since June 2006. So far this year, the Nikkei has lost about 12 per cent. Hong Kong's Hang Seng index fell 4.5 per cent yesterday.
The sell-off was triggered by sharp falls in New York on Friday, when the Dow Jones shed more than 200 points amid continuing fears about the fallout from the credit crisis. And despite being up more than 100 points during yesterday's session, as investors moved back into banking stocks, the Dow ended up falling 55.2, or 0.4 per cent, to 12,987.6 on concerns about the credit crisis.
Amanda Gold, an investment manager at New Star, said the decline had been largely triggered by falls in the US combined with the strength of the yen which has hit the exporters hard. "Unless there is a change in the yen, I can't see a recovery in the blue chips in the short term," she added.
The Japanese Prime Minister, Yasuo Fukuda, sought to allay concerns about the wider economy. "The decline in share prices reflected falls in overseas markets at the end of last week," he said. "There has been some speculative moves as well, but I am not worried about it as Japanese economic fundamentals are not bad."
He added that the yen's rise is "negative for export firms in the short term, but is beneficial for import firms". "Taken together, it cannot be said that a high yen would lead to stock- price falls," he added.
However, Japan's finance minister, Fukushiro Nukaga, said the government needed to "carefully monitor how the sub-prime issue will affect the overall US economy, including the housing market and private consumption". The government must also assess the effect of higher oil prices on corporate earnings and spending by Japanese households, he added.
Consumer confidence in Japan fell to a three-year low in October, according to figures from the Cabinet Office. Economists said firm exports and capital spending had prevented Japan from falling into a recession between July and September following a slight contraction in the previous quarter.
Goldman Sachs' Japan chief economist Tetsufumi Yamakawa said US investors were reducing their Japanese equity holdings. "The reasons for this negative outlook on Japanese equities are too numerous to mention, but include economic trends, Japanese companies' stance on creating shareholder value, a weakening commitment in the government to structural reform," he said.
Jyusaku Mauo, at Mito Securities, added: "Besides the credit problems stemming from the sub-prime mortgage crisis, the outlook for the Japanese economy is becoming opaque." Mr Mauo also pointed to Japan's gross domestic product data, due to be released today.
"Japan's GDP could show some solid numbers, but domestic demand remains sluggish," Mr Mauo said.Reuse content