Aiko Hayashi / Reuters
Tokyo: The Nikkei average fell more than 2% to its lowest close in almost five months on Friday as worries about spreading US subprime mortgage woes sparked selling of financial stocks and prompted investors to take profits in shipping firms and other recent gainers.
The selling spread across the board, with the benchmark now down more than 8% from this year’s peak marked in late February.
“The Japanese market will likely see a less direct impact from the subprime problems than its European and US counterparts, but there are concerns of an indirect impact through hedge funds, just as we saw in yesterday’s trade,” said Naoki Koga, a senior fund manager at Toyota Asset Management.
On Thursday, trading on the Tokyo Stock Exchange hit a record high in value terms as traders said some hedge funds hit by US subprime mortgage woes squared positions and traded in large lots, pushing up volume and turnover in Tokyo.
“The market had risen on ample liquidity, and if that starts to shrink it would be a challenge,” Koga said.
The Nikkei ended the day down 406.51 points or 2.37% at 16,764.09, the lowest close since March 16.
The broader TOPIX index tumbled 2.96% to 1,633.93.
The yen rose broadly on Friday as turbulence in global equities and credit markets led investors to shy away from risk, triggering an unwinding of carry trades.
Trade was active with 3.4 billion shares changing hands on the Tokyo exchange’s first section, compared with a daily average volume of 2.1 billion shares in July. Declining shares outnumbered advancers by a ratio of more than six to one.
Bank shares stayed under pressure, and those with exposure to the high-risk US subprime market were hit hard, with Shinsei Bank Ltd. down 9.9% at 390 yen. Aozora Bank Ltd. lost 3.3% to 387 yen.
“It seems banks that are exposed to the subprime problems are still limited in number here, compared with Europe and the United States,” Koga said, adding that those banks’ impact on the overall market will likely be limited, at least for now.
Shinsei Bank said this week it wrote down $29 million in assets due to problems in the US housing loan market. Its exposure to that market is less than $500 million, it said, with $206 million invested in products that could have some exposure to the US subprime market.
Aozora, which according to Merrill Lynch was the only Japanese bank to disclose its subprime exposure along with first-quarter earnings, said last month it had investments of about 21 billion yen ($178 million) related to the subprime market.
Nervous investors were likely selling even though the banks’ exposure had already been known in the market, said Ken Masuda, a senior equities dealer at Shinko Securities.
Some analysts said the European Central Bank’s record fund injection on Thursday created the negative impression that the credit squeeze had developed to a point where central banks needed to take action, thereby triggering selling of equities.
On Friday, the Bank of Japan conducted a fund injection at its regular money market operation due to a slight rise in the benchmark overnight call rate. The BOJ offered to supply 1.0 trillion yen ($8.47 billion) in funds on a same-day basis, which traders said was at the higher end of market expectations though it was not a big surprise.
Shippers again booked big losses, with the overall shipping sector sinking 6.1%.
Mitsui O.S.K. Lines Ltd. plunged 6.4% to 1,599 yen and Kawasaki Kisen Kaisha dropped 5.6% to 1,430 yen.
The sector had risen 58% from January to July this year, compared with a 1.5% gain in the TOPIX.
Profit-taking hit trading firms, which had booked healthy gains in recent months as they were seen as a beneficiary of strong economic growth in emerging economies.
Mitsui & Co. lost 7.8% to 2,240 yen.
Still, some shares bucked the sharp downward market trend. Fast Retailing Co. Ltd. jumped 4.2% to 7,490 yen after Nomura Securities said the firm’s decision to withdraw its bid for Barneys New York was favourable.