The Japanese stock market was in positive territory for a while, then bobbled between up and down versus the Friday close, and has now taken a nosedive, down over 6%. Most other Asia-Pacific markets showed large losses save Australia, which was down a comparatively modest 1.5%ish. The yen is now (3:00 AM) just above 93 to the dollar. Oil has been down around 1% so far today (Brent is $61.33 per barrel, WTI $63.62) and gold has been weaving around flat, first up a tad but now down a tad at $725 an ounce.
The Group of Seven industrialized nations failed to halt the yen’s advance to near a 13-year high against the dollar after expressing concern about the currency’s “excessive volatility.”
The G-7 made an unscheduled statement after a request from Japan, Finance Minister Shoichi Nakagawa said in Tokyo today, adding that his government was ready to act if needed. The G-7 fell short of pledging concerted action to halt the yen’s gain.
“Issuing such a statement is a sign of failure to intervene,” said Eisuke Sakakibara, a professor at Tokyo’s Waseda University who was the Finance Ministry’s top currency official from 1997 to 1999. “The Japanese government may have consulted with their counterparts in the EU and the U.S. and they couldn’t persuade them to intervene.”
FYI, Sakakibara is known as “Mr. Yen”.
A big reason for the worsening of mood in Japan is that its banks, which have heretofore looked solid by global standards, are suddenly looking as if they too might need to raise capital. The reason? Japanese banks, a legacy of the zaibatsu days, hold substantial equity positions in other companies (note these stockholdings are much smaller than they were in the bubble years, when banks were important members of industrial groupings, later called keiretsu as the linkages weakened). The BIS, in a concession to this Japanese peculiarity, allowed a portion of the value of these shares to be counted towards regulatory capital requirements (forgive me for not checking the current rules, but it used to be 50%).
From the Financial Times:
Shares across Asia fell on Monday amid lingering fears that more government measures would be required to help fend off a global recession and as the Group of Seven industrialised companies indicated it was concerned over the volatility of the Japanese yen.
The Nikkei 225 dropped 6 per cent to 7,191.05, heading for its lowest close since November 1982, but spending much of the day sliding in and out of positive and negative territory. The broader Topix declined 6.9 per cent to 750.64.
Japanese banking shares were particularly hard hit after a report said they would have to raise capital to cover the falling value of their stockholdings.
A local report said Mitsubishi UFJ Financial (MUFG) was planning on raising as much as Y1,000bn to cover a decline in its capital adequacy ratio stemming from its investment in Morgan Stanley and a drop in the value of its shareholdings.
The report said the bank was considering raising the capital through issuing preference shares and common shares through respective private and public offerings. MUFG said there had been no decision made.
Separate reports said that Mizuho Financial Group and Sumitomo Mitsui Financial Group (SMFG), Japan’s second and third largest banks respectively, were also considering the same thing…..
In South Korea, stocks dropped 3.7 per cent to 903.38 even after the Bank of Korea cut rates by 0.75 percentage points to 4.25 per cent. The rate cut helped lift banking stocks and initially the Kospi gained in response but it failed to buoy the overall market for long….
In Australia the S&P/ASX 200 index slid down 1.6 per cent to 3,809.2. The Reserve Bank of Australia, meanwhile, confirmed that it had intervened on Friday to shore up its currency, which has been sliding against the US dollar and the Japanese yen. The Australian dollar was recently trading at $0.6124, slightly stronger than Friday’s lows of $0.6055.
Stocks in the Philippines sank 12.3 per cent to 1,713.83 on fresh fears about the country’s economy and after Banco de Oro Unibank, the country’s largest lender by assets, reporting a quarterly loss on provisions for securities linked to bankrupt Lehman Brothers.
The Hang Seng dropped 4.2 per cent at 12,086.27. The sub index of mainland Chinese shares trading in Hong Kong dropped 6.9 per cent to 5,402.73.
In Shanghai, shares fell 4.2 per cent to 1,763.181, reaching fresh two-year lows.