The Nikkei average fell 3.34 percent on Monday, marking its biggest one-day tumble in nine months and a new low for 2007, as investors continued to dump shares in exporters such as Toyota Motor Corp and Canon Inc following the yen's rise.
The sell-off pushed the benchmark below the psychologically important 17,000 level for the first time in nearly two months and left investors wondering when stocks will rebound.
"If New York continues to slide and the yen continues to strengthen at this pace, there is no bottom in sight for Japan," said Kirby Daley, a strategist at brokerage Fimat. The Nikkei tumbled 575.68 points to 16,642.25, its lowest close since December and its biggest one-day percentage loss since June 2006. The broader TOPIX index slid 3.42 percent to 1,662.71, its lowest close since January.
Shares of Softbank Corp, start-ups and other stocks favoured by retail investors were among the hardest hit, as small investors rushed to sell securities bought with borrowed money. "This is toughest for the retail investors," said Yoku Ihara, manager of investment information at Retela Crea Securities, a small Tokyo brokerage that targets individual investors.
"They are being squeezed by margin calls." A margin call is when a security bought with borrowed money falls beyond a certain amount. Investors must then deposit more money with their brokers or sell some assets. Shares of Japan's start-up markets also booked heavy losses, with the Mothers index tumbling 7.42 percent to 988.14, its lowest in more than three years.
Internet bulletin boards were flooded with reactions from alarmed retail investors. "This is a meltdown for the Japanese market," was one comment on a popular site. "The real worry is the currency," said Masayoshi Okamoto, head of dealing at Jujiya Securities. The yen touched 115.37 yen to the dollar on Monday, its highest in three months.
A stronger yen is a minus for exporters as it eats into profits when earnings from abroad are brought home. Toyota fell 3.2 percent to 7,460 yen. The world's most profitable auto maker makes nearly three-quarters of its sales outside of Japan.
"Toyota has assumed an exchange rate of 115 yen to the dollar for the fourth quarter," Jujiya's Okamoto said. "Investors were buying Toyota on the assumption that the exchange level would be around 120 yen." Office equipment maker Canon, which makes nearly 80 percent of it sales overseas, lost 2.1 percent to 6,130 yen.
Trade was active with 3 billion shares changing hands on the Tokyo exchange's first section, well above last year's daily average of 1.9 billion shares. About 97 percent of the some 1,700 shares on the exchange's first section declined.