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Japan 18yr low { September 2 2002 }

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Tokyo's Nikkei Hits 18-Year Low
Last Updated: September 02, 2002 11:51 PM ET
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By David McMahon

TOKYO (Reuters) - Tokyo's Nikkei average dropped to an 18-year low on Tuesday as tech-related shares led a broad-based decline sparked by growing concern about the sustainability of Japan's fragile economic recovery.

"Market sentiment is absolutely awful right now. Stocks look very cheap at these levels but nobody is ready to buy yet," said Masaharu Sakudo, an adviser at Tachibana Securities.

The Nikkei dropped 1.67 percent or 159.10 points to 9,362.53 after falling as far as 9,269.10. On November 10, 1983, it closed at 9,244.24.

The capital-weighted TOPIX index shed 1.61 percent to 915.40, its lowest since December 1984.

"It was only a matter of time until we fell this low," said Masanori Hoshina, head of global portfolio marketing at BNP Paribas.

"Part of our weakness lies in concerns about the cloudy economic outlook in the U.S. But the key problem is that there are still no signs of a sustainable economic recovery in Japan," he added.

Data on Friday showed the Japanese economy grew at a faster-than-expected 0.5 percent in the April-June quarter, but industrial production fell unexpectedly for the second straight month in July and other data showed deflation worsening.

Declines in prices make it harder for Japanese companies to service their mountains of debt, adding to pressure on banks.

High government debt levels are also a worry.

"With a public debt of around 140 percent of GDP, the Japanese government doesn't have many cards left up its sleeve," said Hiroshi Nishiyama, senior portfolio manager at SG Yamaichi.

"But the perception is growing that this government's economic reforms are going nowhere. Without some decisive action, such as a cut in the consumption tax to rev up spending, I can't be optimistic about the outlook for stocks."


Against such a backdrop banks were pummelled. Mizuho Holdings Inc, the world's largest bank by assets, plunged 7.23 percent to 231,000 yen and was the highest traded issue by value on the first section of the Tokyo Stock Exchange. Rival UFJ Holdings Inc slipped 4.18 percent to 252,000.

Japan's megabanks have large holdings of stocks on their books and falls in the stock market eat into their capital base, increasing fears of financial instability.

Japan's high-tech exporters were also hit hard.

Consumer electronics giant Matsushita Electric Industrial Co Ltd dropped 3.05 percent to 1,369 yen, while rival Toshiba Corp shed 2.25 percent to 391 yen.

Another notable loser was Tokyo Electric Power Co Inc (TEPCO) , which extended its losing skid to six straight sessi

Another notable loser was Tokyo Electric Power Co Inc (TEPCO) , which extended its losing skid to six straight sessi ons and was down 1.46 percent on the day at 2,360.

Shares in Japan's biggest power utility have come under heavy pressure since it said last week that it may have failed to accurately report cracks in its reactors.

Traders say that a string of recent scandals in corporate Japan has helped undermine market sentiment and depress trading volume in recent weeks.

Trading edged up on Tuesday, with 354.13 million shares changing hands on the first section, the highest morning total since August 23.

Decliners overwhelmed gainers 1,314 to 83.


Monday was a holiday in the U.S. and traders say many market participants are waiting for a lead after Wall Street reopens.

Nasdaq futures were down one percent at midday in Tokyo, indicating a weak opening for U.S. stocks later.

The Institute of Supply Management (ISM) releases its monthly manufacturing index on Tuesday, which will give a reading on the state of the U.S. manufacturing sector.

The figure will be keenly watched by Japanese investors as Japan's fragile economic recovery is reckoned to be dependent on the sustainability of robust exports to its biggest trading partner, the United States.

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