No end in sight to rapid Tokyo fall

Press, 28 July 1987, Page 28

No end in sight to rapid Tokyo fall

By

JAMES KYNGE

NZPA-Reuter Tokyo

There is no end in sight to the break-neck fall in the Tokyo stock market, according to analysts and brokers.

The market, which has shed more than 10 per cent in the last month, is expected to decline further because of widespread fears of a rise in Japanese interest rates, they said.

The 225-share index recently lost 250.28 points to close at 23,078.36. The decline came on the heels of a 654.81 point drop last week, the third biggest one-day fall. “I think the market index could fall to about 21,500 points by some time like the middle of September,” said a broker at Japan’s biggest security company, Nomura. Rising international crude oil prices, tension in the Gulf, a strong dollar against the yen and high U.S. interest rates will all tend to depress

stock prices, the Nomura broker and other analysts said.

The bleakest predictions are prompted by fears that the most solid foundation of the two-year surge in Tokyo stock prices — successive interest rates cuts — is now shattered. Lower interest rates encourage investors to move

funds from bank deposits into stocks. They also make it cheaper to speculate in the market with borrowed money.

“It is safe to assume that as long as interest rates look like climbing, the stock market will remain depressed,” said Ron Napier, chief analyst at U.S. broker, Salomon Brothers. Interest rates seem to be moving up because of fears that rapid money supply growth and rising oil and land prices will push inflation higher.

The dollar’s rebound against the yen over the past two months has also removed a major reason for a further cut in interest rates, stock market analysts said. Until that rebound, Japan felt compelled to cut interest rates to stem the yen’s year-long rise against the dollar, which was crippling its exporters. Players in Tokyo’s bond and stock markets widely expect the Long-Term

Credit Bank of Japan and other banks to raise their long term prime lending rates after meeting with finance Ministry officials. Soaring oil prices are also hurting the stock market.

High crude prices would increase the cost of production in Japan, which imports virtually all its crude oil.

Rising oil prices also stir fears of inflation in the United States, supporting American interest rates at current lofty levels.

“High American interest rates attract money from Japan to the United States,” said a broker at Wako Securities Company. “It is a vicious circle which makes the dollar go higher.”

As the dollar rises against the yen, dollarbased investments become preferable to those denominated in yen and leaves Japanese stock and bond markets in favour of their American counterparts.