Japan's Nikkei average slid 6.4 percent on Monday to its lowest close in 26 years, as the yen rose to batter exporters such as Toyota Motor Corp and banks tumbled on concerns they would need to beef up capital. Gains in the yen came despite a G7 warning about excessive volatility in the currency - a warning that the Japanese government had requested.
Pledges from Prime Minister Taro Aso for more steps to ease the strains on banks and strengthen rules on short-selling did little to ease the panic in the markets. "We need something that surprises the market in a good way, perhaps something like the government intervening to sell yen," said Masayoshi Okamoto, head of dealing at Jujiya Securities.
"If we don't have something like this, today's low - the 26-year low - won't be significant at all." In its fourth straight negative day, the Nikkei shed 486.18 points to close at 7,162.90, its lowest close since October 1982 - when Ronald Reagan was the US President and Sony Corp released the CD player.
At one point it fell as far as 7,141.27. The benchmark has lost 36.4 percent so far this month and 53 percent this year. The broader Topix was down 7.4 percent at 746.46. Shares of Mitsubishi UFJ Financial Group slid after sources said it may need to raise up to $10.8 billion in capital to offset hefty losses on its stock portfolio.
Other banks were also looking at securing more capital, newspapers reported. Asian shares also fell, hurt by the view that central bank policy moves, including a record rate cut in South Korea, were not enough to allay a global recession. The MSCI index of stocks outside Japan was down 5.8 percent.
"It's hard to see where the market will stop. If you consider valuations or any other sort of measure, the current levels are abnormal," said Takashi Ushio, head of investment strategy at Marusan Securities. Trade was active, with some 3.1 billion shares changing hands on the Tokyo Exchange's first section compared with last week's daily average of 2.1 billion. Declining shares outpaced advancing ones by more than 12 to one.
TOYOTA HITS FIVE-YEAR LOW: The dollar slipped against the yen and was fetching around 93.20 yen, erasing gains made on a G7 warning against excessive volatility in yen exchange rates that raised the prospect of official intervention.
Among blue chip exporters, Toyota fell 8.1 percent to 2,940 yen, its lowest close since mid-2003 and Honda slid 8.9 percent to 1,812 yen. Digital camera and copier maker Canon Inc dropped 10.9 percent to 2,375 yen. After the close, it reported a 26 percent fall in quarterly operating profit and cut its annual outlook to predict its first profit decline in 9 years, hit by sluggish demand for copiers and digital cameras and a stronger yen.
Among banks, Mitsubishi UFJ fell 14.6 percent to 583 yen, while Mizuho lost 14.8 percent to 230,000 yen and Sumitomo Mitsui shed 11.5 percent to 385,000 yen. Prime Minister Taro Aso said the government would expand a scheme that allows banks access to public funds and also strengthen regulations on the short-selling of shares. Other steps mentioned include using a state body to buy shares from banks, and extending tax relief on income from stocks and dividends.
The measures underscore the difficulties now facing lenders in the world's No 2 economy, which at first appeared to have avoided the credit crisis, allowing them to invest in overseas rivals. Mizuho Financial Group, Japan's second-largest bank, and third-ranked Sumitomo Mitsui Financial Group are both looking to raise as much as 500 billion yen ($5.4 billion), newspapers said.
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