Tokyo stocks rally despite further bank failure

Amid a continuing atmosphere of anxiety in East Asia, the Tokyo stock exchange rallied in early trading this morning despite news of another failure in Japan's financial sector. The use of public funds to stabilise Japan's financial system seemed to have countered this news and a bad day yesterday for the yen. Richard Lloyd Parry reports from Seoul on the Far East financial crisis.

The Nikkei average of 225 shares this morning rose 3 per cent in early trading following a drop yesterday of 854 points - more than 5 per cent - to a close of 15,867.53, after Yamaichi Securities, Japan's fourth- largest brokerage, was forced to close on Monday in post-war Japan's biggest corporate collapse.

In an alarming development, Yasuda Trust, the country's fourth-biggest trust bank, saw its debt downgraded by a leading credit agency to junk bond status, a decision which dealt the final blow to Yamaichi last week. As if that were not enough, Tokuyo City Bank, a small regional bank, announced early today it was going out of business. Though the scale of Tokuyo City Bank's collapse was small compared with the failure in the past month of three significant financial institutions, the news added to gloom about Japan's economy.

Banking analysts in Tokyo do not expect Yasuda to suffer the same fate as Yamaichi, although it will face intense difficulties in the short term. Yasuda is the fourth-largest of Japan's seven trust banks, and like many of its competitors it has been hard hit by the collapse in land prices which have rendered many of its borrowers unable to repay their loans. Yesterday it announced a pre-tax loss of 75.5 billion yen (pounds 356m) in the six months to September, compared to a 4bn profit the year before.

The credit rating agency Standard and Poor's (S&P) lowered its long-term ratings for Yasuda from BB-plus to BBB-minus with negative outlook, below investment grade. In the medium term, S&P said: "It will be difficult for Yasuda to overcome challenges such as its seriously impaired asset quality, rising stock market volatility, growing wariness among investors and a slumping domestic economy."

If, as expected, Moody's announces a similar downgrade tomorrow, Yasuda will find it almost impossible to borrow money on the international markets as long as the rating lasts. By the time Moody's announced an even more drastic downgrade of Yamaichi last Friday, the brokerage's lines of credit had dried up and it was forced to close itself down. The collapse of a bank such as Yasuda Trust would have a far more serious effect on international sentiment but, for several reasons, this is unlikely to happen.

For a start, it is a core member of the Fuyo Group, one of Japan's keiretsu - huge corporate groupings of banks, insurance companies, trading houses and manufacturers, linked by cross-shareholdings and close personal relationships between executives. Within hours of the S&P announcement yesterday, Yasuda Trust made an allocation of 50bn of new shares to Fuyo Group members, including Fuji Bank, which is expected to tide it over in the short term.

No bank in a large keiretsu has ever been allowed to go bust and both corporate allies and the Japanese authorities are likely to view such a failure as a step too far, certainly in the current atmosphere. Unlike Yamaichi, which was tainted by scandals involving corporate racketeers and the illegal concealment of losses, Yasuda enjoys a sound reputation.

There were scuffles at Yamaichi branches yesterday as customers queued in the rain to close their accounts and collect their securities, and the Bank of Japan provided 800 billion yen in unsecured interest-free loans to ensure liquidity, according to Japanese press reports.

The finance minister, Hiroshi Mitsuzuka, repeated his assurances that the government would take "all necessary measures to ensure stability in the financial system", but shares were still sold heavily and seven out of the 10 biggest losers were banks.

The government's efforts to reassure the markets that they will not allow chaos to descend were reckoned, however, by some analysts to have limited the damage.

"It could have been worse," said Brian Waterhouse of James Capel in Tokyo. "The sense I get now is that politicians and bureaucrats are now moving in the same direction, and that the worst is already over.''

The yen closed yesterday at 128 to the dollar, its weakest for five years, exacerbating concerns that cheaper exports would increase Japan's trade surplus with its overseas partners.

Voices
On the last day of campaigning before the polling booths open, the SNP leader has written to voters in a final attempt to convince them to vote for independence
voicesIs a huge gamble on oil keeping the First Minister up at night?
Life and Style
techApple has just launched its latest mobile operating software – so what should you do first?
Arts and Entertainment
Pointless host Alexander Armstrong will voice Danger Mouse on CBBC
tv

Much-loved cartoon character returns - without Sir David Jason

Arts and Entertainment
Liam Neeson said he wouldn't
tv

Liam Neeson's Downton dreams

PROMOTED VIDEO
Arts and Entertainment
Actor and director Zach Braff
tv

Arts and Entertainment
Rosalind Buckland, the inspiration for Cider with Rosie died this week
booksBut what is it like to be the person who inspires a classic work of art?
Arts and Entertainment
tv

Arts and Entertainment
The former Doctor Who actor is to play a vicar is search of a wife
film

Matt Smith is set to join cast of the Jane Austen classic - with a twist

Arts and Entertainment
Lionel Messi in action for Barcelona
filmWhat makes the little man tick?
Arts and Entertainment
Meera Syal was a member of the team that created Goodness Gracious Me
tv

Actress to appear in second series of the hugely popular crime drama

Arts and Entertainment
tvReview: An undercooked end (spoiler alert)
News
i100
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
Pharrell dismissed the controversy surrounding
musicThe singer said 'the last thing I want to do is degrade'
Sport
Cesc Fabregas celebrates his first Chelsea goal
footballChelsea vs Schalke match report
Arts and Entertainment
Toby Jones (left) and Mackenzie Crook in BBC4’s new comedy The Detectorists
tvMackenzie Crook's 'Detectorists' makes hobby look 'dysfunctional'
Life and Style
fashion

Olympic diver has made his modelling debut for Adidas

News
i100
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Property Underwriter

£70-90,000: Saxton Leigh: Our client a London Market Insurer are seeking a Pro...

Operational Risk Manager - Asset Management

£60,000 - £80,000: Saxton Leigh: Our client is an leading Asset Manager based...

Trainee Recruitment Consultant Birmingham

£18000 - £23000 per annum + Comission: SThree: The SThree group is a world lea...

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

Day In a Page

Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week