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.

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Attenborough with the primates
tvWhy BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter
News
Campbell: ‘Sometimes you have to be economical with the truth’
newsFormer spin doctor says MPs should study tactics of leading sports figures like José Mourinho
Sport
football
Life and Style
Agretti is often compared to its relative, samphire, though is closer in taste to spinach
food + drink
News
Kelly Osbourne will play a flight attendant in Sharknado 2
people
News
Down-to-earth: Winstone isn't one for considering his 'legacy'
people
News
The dress can be seen in different colours
i100
Sport
Wes Brown is sent-off
football
Voices
Lance Corporal Joshua Leakey VC
voicesBeware of imitations, but the words of the soldier awarded the Victoria Cross were the real thing, says DJ Taylor
Life and Style
Alexander McQueen's AW 2009/10 collection during Paris Fashion Week
fashionMeet the collaborators who helped create the late designer’s notorious spectacles
ebooks
ebooksA special investigation by Andy McSmith
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

SThree: HR Benefits Manager

£40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...

Recruitment Genius: Office Manager / Financial Services

£30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...

Jemma Gent: Year End Accountant

£250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...

Jemma Gent: Management Accountant

£230 - £260 Day Rate: Jemma Gent: Do you want to stamp your footprint in histo...

Day In a Page

War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

The battle for Mosul will unleash 'a million refugees'

Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn
Yvette Cooper: We can't lose the election. There's too much on the line

Yvette Cooper: We can't lose the election. There's too much on the line

The shadow Home Secretary on fighting radical Islam, protecting children, and why anyone in Labour who's thinking beyond May must 'sort themselves out'
A bad week for the Greens: Leader Natalie Bennett's 'car crash' radio interview is followed by Brighton council's failure to set a budget due to infighting

It's not easy being Green

After a bad week in which its leader had a public meltdown and its only city council couldn't agree on a budget vote, what next for the alternative party? It's over to Caroline Lucas to find out
Gorillas nearly missed: BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter

Gorillas nearly missed

BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter
Downton Abbey effect sees impoverished Italian nobles inspired to open their doors to paying guests for up to €650 a night

The Downton Abbey effect

Impoverished Italian nobles are opening their doors to paying guests, inspired by the TV drama
China's wild panda numbers have increased by 17% since 2003, new census reveals

China's wild panda numbers on the up

New census reveals 17% since 2003
Barbara Woodward: Britain's first female ambassador to China intends to forge strong links with the growing economic superpower

Our woman in Beijing builds a new relationship

Britain's first female ambassador to China intends to forge strong links with growing economic power
Courage is rare. True humility is even rarer. But the only British soldier to be awarded the Victoria Cross in Afghanistan has both

Courage is rare. True humility is even rarer

Beware of imitations, but the words of the soldier awarded the Victoria Cross were the real thing, says DJ Taylor
Alexander McQueen: The catwalk was a stage for the designer's astonishing and troubling vision

Alexander McQueen's astonishing vision

Ahead of a major retrospective, Alexander Fury talks to the collaborators who helped create the late designer's notorious spectacle
New BBC series savours half a century of food in Britain, from Vesta curries to nouvelle cuisine

Dinner through the decades

A new BBC series challenged Brandon Robshaw and his family to eat their way from the 1950s to the 1990s
Philippa Perry interview: The psychotherapist on McDonald's, fancy specs and meeting Grayson Perry on an evening course

Philippa Perry interview

The psychotherapist on McDonald's, fancy specs and meeting Grayson Perry on an evening course
Bill Granger recipes: Our chef recreates the exoticism of the Indonesian stir-fry

Bill Granger's Indonesian stir-fry recipes

Our chef was inspired by the south-east Asian cuisine he encountered as a teenager
Chelsea vs Tottenham: Harry Kane was at Wembley to see Spurs beat the Blues and win the Capital One Cup - now he's their great hope

Harry Kane interview

The striker was at Wembley to see Spurs beat the Blues and win the Capital One Cup - now he's their great hope
The Last Word: For the good of the game: why on earth don’t we leave Fifa?

Michael Calvin's Last Word

For the good of the game: why on earth don’t we leave Fifa?
HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

Scientists hail daily pill that protects against HIV infection

Breakthrough in battle against global scourge – but will the NHS pay for it?