The Nikkei 225 stock index closed 647.66 points down at 16,078.71 as investors despaired of any government initiatives to bail out the economy.
The Nikkei has lost a quarter of its value since the beginning of this month as companies' mid-term results showed deteriorating profits.
A survey published in yesterday's Asahi newspaper found that 96 per cent of businessmen polled thought the economy would not begin recovering until at least the end of next year, while 34 per cent said the recession would continue into 1995.
The immediate reason for the increased selling over the past few days has been the poor outlook for the banks, which published interim results last Thursday. These showed bad debts continuing to rise.
Jiro Saito, the deputy finance minister, yesterday dismissed fears of a collapse of the strained banking system. He added that there were no plans to inject further public funds to prop up share prices. Last year, after the Nikkei fell to a low of 14,309 on 18 August, the finance ministry pumped billions of yen into the market to support prices.
Matthew Berlow, economist at Credit Lyonnais in Tokyo, said the problem was growing realisation of how bad the economy was. 'Last year everyone expected growth this year,' he added. 'Now everybody expects negative growth. I think the ministry of finance deluded themselves, thinking if they kept the market up they could keep the economy up.'
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