Tokyo stocks plunge on U.S. proposal for banks

A man is silhouetted in front of a stock index board outside a brokerage in Tokyo January 22, 2010. The benchmark Nikkei average slid 2.7 percent and the broader TOPIX fell 1.9 percent on Friday. (Xinhua/Reuters Photo)
Japan's Nikkei Stock Average slumped 2.56 percent on Friday following a U.S. government proposal to impose tougher regulations on banks to reduce risk taking. The news saw Wall Street stocks plunge overnight, which, coupled with a strengthening yen, further compounded losses in Japan's export- oriented and commodities sectors.

Japan's key benchmark Nikkei lost 277.86 points from Thursday, to 10,590.55. The broader Topix index of all First Section issues on the Tokyo Stock Exchange dropped 15.09 points, or 1.58 percent, to 940.94.

"The U.S. proposal, as it is now, would discourage people from investing in higher-risk assets such as stocks and commodities, causing these markets to shrink," said Ayako Sera, a market strategist at Tokyo-based Sumitomo Trust & Banking Co. "People like us in the financial industry feel opposed to the proposal."

Although the proposed U.S. regulations on banks could act to restore the health of the financial sector in the short term, the implications for the wider economy could be negative if lending doesn't increase, which has given rise to a negative reaction from market players, who are concerned for the future profitability of U.S. banks, brokers maintained.

The U.S. proposal, which includes enforcing bans on banks investing in hedge funds, spurred a slump in U.S. oil and metal stocks and subsequently Japanese refiners and other natural resource and commodity-related issues declined on Friday.

Further contributing to domestic resource-related losses were copper prices falling to a three-week low on Thursday and crude oil extending losses, hitting a four-week low on Friday, following government reports that indicated a sharp drop in U.S. refining activity.

Subsequently, Nippon Mining Holdings Inc. dropped 3.16 percent to 398 yen and fellow refiner Nippon Oil Corp. also lost 3.16 percent, closing down at 429 yen. Showa Shell Sekiyu K.K. retreated 2.03 percent to 723 yen and Showa Denko K.K. lost 2.6 percent to 188 yen at the close on Friday.

Shin-Etsu Chemical Co. Ltd., a notable decliner on the exchange, plunged 5.27 percent to 4,945 yen after it reported a 53 percent fall in quarterly operating profit, hurt by weak prices and a strong yen. The company said it expected its annual profit to halve from a year earlier.

Sumitomo Metal Industries Ltd., fell 2.2 percent to 266 yen and Pacific Metals Co. Ltd. gave up 2.96 percent to 656 yen. Toho Zinc sank 4.36 percent to 439 yen.

The dollar relinquished 0.6 percent to 89.95 yen after dipping as low as 89.80 yen in early trade, which further added to investor consternation on Friday.

Electronics parts maker Kyocera Corp. tumbled 3.9 percent to 8, 070 yen, while chip-tester maker Advantest Corp. lost 2.8 percent to 2,524 yen. TDK Corp. fell 2.9 percent to 5,940 yen and Sony Corp. lost 1.26 percent to 3,145 yen. Olympus Corp. dropped 3.3 percent to 2,899 yen.

Toyota Motor Corp. skidded down 3.22 percent to 4,055 yen following a recall in the U.S. of about 2.3 million vehicles with potentially defective accelerator pedals. Honda Motor Co. Ltd., hit by a resurgent yen, lost 2.42 percent to 3,230 yen and Mitsubishi Motor Corp. fell 3.6 percent to 134 yen.

Some 2.86 billion shares changed hands on the Tokyo exchange's First section, slightly below last week's daily average of around 3 billion shares.

Declining issues outnumbered advancing ones by 1,357 to 229.

Source: Xinhua