Eriko Amaha / Reuters
Tokyo: The Nikkei average tumbled 2.19% to hit its lowest close since mid-March on Wednesday, hit by worries about a spreading credit crunch and dragged down by TDK Corp., which fell on sharply lower profit.
The broader TOPIX index also declined 2.19%, hit partly by hefty losses in bank shares which came under pressure after their disappointing earnings results.
The benchmark has lost 2% this year, giving up all the gains it posted following a global stock sell-off in late February.
Credit concerns were aggravated after Australia’s Macquarie Bank warned that retail investors face losses of up to 25% in two of its high-yielding funds as part of the fallout from the US subprime mortgage crisis.
The yen hovered near a three-month high against the dollar, indicating the unwinding of carry trades where investors sell low-yielding currencies such as the yen to invest in higher-yielding currencies and assets.
“The yen’s appreciation means unwinding of investors’ positions to take credit risks,” said Toshihiko Matsuno, assistant general manager, investment research department SMBC Friend Securities. “That prompts investors to sell stocks for now.”
Women pass by a stock indicator in Tokyo on 1 August. Japanese stocks tumbled to a four-month-and a-half low on disappointing earnings from the nation’s megabanks. The Nikkei 225 fell 377.91 points to finish at 16,870.98 points. AP Photo/Katsumi Kasahara
The Nikkei gave up 377.91 points to fall below 17,000 and end at 16,870.98, the lowest close since 16 March. The broader TOPIX index sank to 1,668.85.
Matsuno also said the credit concern was weighing on the Japanese financial sector.
“More or less, and directly or indirectly, Japanese financial institutions have subprime” mortgage loans, he said. “Investors are selling because they don’t know how much these institutions have been exposed,” he added.
The banking subindex IBNKS.dropped 4.7% to be the worst performing sector.
Hiroaki Kuramochi, managing director at Bear Stearns (Japan) Ltd, agreed that such worries, along with political uncertainties, discouraged investors from picking up stocks.
Japanese Prime Minister Shinzo Abe sacked his scandal-tainted farm minister on Wednesday, seeking to soothe voter outrage over political corruption that contributed to a devastating election loss for Abe’s ruling camp at the weekend.
Trade was relatively active with 2.3 billion shares changing hands, compared with last week’s daily average volume of 2.1 billion. Declining shares beat advancing ones by a ratio of nearly eight to one.