Tokyo share prices sank more than 2 percent to hit their lowest in 2007 on Wednesday as financial shares dropped on rekindled worries about a credit squeeze and exporters were hit by concern about a slowdown in the US economy.
The Nikkei share average has lost 10 percent since it marked a year-high in late February, before the US subprime mortgage problem began to take its toll on global financial markets.
Matsushita Electric Industrial Co Ltd tumbled 5 percent to 2,015 yen after Nokia said it would recall 46 million batteries made by Matsushita that are used in its mobile phones. Mobile phone operator Softbank Corp shed 4.8 percent to 2,395 yen as J.P. Morgan initiated coverage on the stock with an "underweight" rating, contributing to the Nikkei's fall.
A lower profit forecast by US retail giant Wal-Mart Stores Inc sparked worries about a slowdown in US consumption, which accounts for 70 percent of the gross domestic product, said Norihiro Fujito, general manager of the investment research and information division at Mitsubishi UFJ Securities Co Ltd.
"On top of the ongoing turmoil at financial institutions hit by the US subprime problems, we have now started to see the impact on the US economy as well as corporate earnings," he said. "It's natural that Toyota is sold and so are Japanese digital home electronics makers as they are the ones which supply goods to Wal-Mart."
The benchmark Nikkei declined 2.19 percent or 369.00 points to 16,475.61, the lowest close since December 8, 2006. The TOPIX lost 2.64 percent to 1,594.15, the lowest finish since November 29, 2006.
Trade was moderate with 2 billion shares changing hands on the Tokyo exchange's first section, almost in line with the daily average volume of 2.1 billion shares in July. Declining stocks outnumbered advancers by a ratio of nearly 13 to one. Major banks and other financial stocks took a beating.
Shares in Mitsubishi UFJ Financial Group Inc, Japan's largest bank, lost 5.3 percent to 1.08 million yen. The bank revealed on Tuesday that it had an appraisal loss of 5 billion yen ($42.42 million) on its investment in financial products related to US subprime loans. Its outstanding balance of investment in such products stood at 280 billion yen as of July.
Sumitomo Mitsui Financial Group Inc (SMFG) fell 5.9 percent to 920,000 yen after Japan's No 3 bank said it booked a loss of "billions of yen" in the April-June quarter through its sale of 350 billion yen worth of mortgage-backed securities.
Although both banks said the impact on their earnings was limited, investors cooled on the sector. Fujito of Mitsubishi UFJ Securities said not only subprime loans but other risk assets are seeing a plunge in their prices, fuelling concern about the financial health of portfolios of banks and other firms. A dimmer outlook for US consumer spending and the dollar's fall to a 4-month low against the yen sent auto stocks lower. Toyota Motor Corp declined 3 percent to 6,850 yen and Honda Motor Co was down 2.7 percent at 3,920 yen.
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