Jolted by a decline overnight in Wall Street, Tokyo share prices took a beating Thursday.
The benchmark Nikkei-225 industrial average tanked 554.46 points, or 5.09 percent, to close at 10,335.16. It was the sharpest single-day decline since Sept. 12, 2001, the day after the terrorist attacks on New York and Washington, as the market continued to fall for the third consecutive session. The broader Topix index tumbled 5.28 percent to close at 1,017.03.
A total of 1,496 shares, or nearly 98 percent of total shares listed on the first section of the Tokyo Stock Exchange, declined in value from the previous day, while only 23 companies saw their share price increase, and seven remained unchanged. The sharp decline in equity prices erased $152 billion (16.6 trillion) in value from the exchange.
Some overseas investors were rattled by increased fears that Prime Minister Junichiro Koizumi might lose -- or at least his Liberal Democratic Party may lose considerable ground -- at the upcoming general elections on Nov. 9. There is growing concern about a political scandal breaking out, with the head of the Japan Highway Public Corp. Haruho Fujii refusing to step down from his post despite pressure from Land Minister Nobuteru Ishihara to leave. Fuji had been awarding big contracts for building up infrastructure at a time when Koizumi has been trying to cut down on public spending. But Fuji has threatened to name high-ranking members of the Liberal Democratic Party that had benefited from the deals.
And as if worries about election results and political scandals weren't enough, traders remained cautious about the situation in North Korea, as the hermit nation lobbed yet another missile across the Sea of Japan earlier in the week, coinciding with the Asia Pacific Economic Cooperation forum's summit meeting in Bangkok. Concerns about Japan's relations with the country, coupled with what damage North Korea could potentially do to Japan, has kept investors away from the markets, too.
But the biggest headache for many remains the continued weakness of the dollar. Even though the greenback has somewhat stabilized against the yen, it still remains weak at about 109 yen to the dollar. A strong yen makes Japanese exports more expensive, and thus less competitive, in overseas markets. As a result, many of Japan's manufacturers have been less profitable precisely because of the fluctuations in the foreign exchange regime, that has led to a marked decline in share prices in recent days.
Electronics giant Sony reported Thursday that its profit for the first three months of the current fiscal year ended September declined by 25 percent, and it slashed its operating profit forecast by 23 percent. One factor for the downward revision was the sluggish demand for Play Station 2 hardware as well as software.
"The game business is in the throes of global competition that involves both the IT and entertainment industries," said Sony's chief financial officer Takao Yuhara.
As a result, the company said it would need to pump in more resources to stay ahead of the game, and as such, Sony said it would nearly double its spending on research and development, mostly towards developing an advanced type of semiconductor.
Meanwhile, auto manufacturer Toyota saw its share price fall by 3 percent to 3,230, while Nissan saw its share plunge by 5.5 percent, while Honda declined by 3.5 percent.
Still, longer-term prospects for the Japanese economy appear to be bright enough. The Bank of Japan reported Thursday that the number of those who believe that the economy is turning around is up 29.8 points, marking the biggest rise in sentiment since the BOJ started its survey of consumer sentiment in 1993. Of the 4,000 people approached, there were 2,969 respondents.
At the same time, the Prime Minister's Office reported that consumer sentiment rose for the second straight month, largely as a result of an improvement in the job market.
There is also hope for a pickup in the stock market in the long run, following the announcement by five major internet brokerage companies that all reported record profits.
"The recovery in the stock market has increased the activity among first-time investors buying up equities on the stock market," reported Monex Securities, one of the five big on-line securities companies.
