Nikkei drops below 8,000

Grim numbers are an urgent appeal to Koizumi.

The Nikkei 225 index closed at a new 20-years low on Monday after temporarily falling below 8,000. The broader-based Tokyo Stock Price Index (TOPIX) sank further below 800. The stock market is reeling over concerns about the deteriorating domestic economy and rapidly growing peril abroad.

Iraq tops the list of concerns. The United States is prepared to attack Iraq even if the United Nations Security Council rejects a new resolution authorizing use of force.

Oil prices are already soaring. War against Iraq could throw many Muslim nations into political chaos. Air transportation of people and merchandise could shrink worldwide. A significant decline in the value of the dollar resulting from investor flight from the currency in the face of crisis would be a huge blow to Japan and other Asian economies that rely on exports to the United States.

Such uncertainties are shaking stock markets all over the world. The government should also be aware that its position on Iraq is being closely watched by the markets.

The disquieting prospect of war in Iraq is certainly not the only factor in the Nikkei’s first plunge below 8,000 since March 1,1983. Although the Tokyo Stock Exchange is back where it was two decades ago, share prices in New York markets are still about seven times their levels of 20 years ago.

In Japan, efforts by the big banks to raise their capital base are weighing down the stock market. If these moves are part of bank effort to be more competitive by shedding bad loans and radical restructuring, they are to be welcomed.

But the capital increases have been read in the market more as efforts to dress up their financial circumstances for the end of the fiscal year, leading investors to focus on the prospect of lower per-share values for bank stocks as they add capitalization. That has led to the decline of bank shares.

The authorities took punitive action against Nikkei Solomon Smith Barney Ltd. over accusations of stock price manipulation. Such revelations of improprieties by brokerage houses inevitably drive investors away from stocks.

Tumbling stock prices cause grave financial harm to banks and life insurance underwriters that have large stock portfolios.

Things also get tougher for pension fund managers struggling to improve their investment performance in the face of ultra-low interest rates.

Within the ruling Liberal Democratic Party, pressure is building to have public institutions prop up the sagging market by buying up more shares. Some lawmakers also suggest delaying planned introduction of new accounting standards that would require banks to post unrealized losses on assets in their financial statements and putting off restrictions on bank shareholdings.

　But the present low market prices are a grim result of may years of muddling through financial woes, provoking practically annual warnings of a “March crisis” with the approach of the end of each fiscal year.

The stock marker reflects economic vitality and future expectations. The only way to improve market prospects is to restore investor confidence through fundamental reordering of the economy, even if it will take time.

Step one is revival of the troubled banking sector. The government should push harder for quicker unloading of bad debt and should not hesitate to pump money into the banking system if leading institutions fall seriously short of capital. But policymakers should not focus too much on stock prices. More needs to be done to improve the climate for investment in securities to encourage wider involvement by individual investors.

Listed companies need to be more forthcoming about vital information to encourage investors and not put them at a disadvantage. Creation of a Japanese version of the U.S. Securities and Exchange Commission would help in having a tougher new watchdog organization to crack down on illegal practices. Tax breaks should be considered for securities investors. Only through a combination of such efforts would stock prices be brought higher in the long run.

Prime Minister Junichiro Koizumi needs to pay careful attention to the urgent messages being relayed by stock markets around the world.

-The Asahi Shimbun, March 11