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Wednesday, January 18, 2006

Tokyo Stock Exchange Temprarily Closed

Gosh, I certainly hope this isn't anything too serious:

Japanese stocks plunged on Wednesday after the Tokyo Stock Exchange announced that it would suspend trading of all stocks because volumes were too high. The news panicked investors, who had already sent the Nikkei down heavily in the wake of Monday evening’s government raid on Livedoor, the internet services company, over possible violation of security laws.

As Bloomberg points out, this has been a bad week for Japanese shares:

A rout in Japanese stocks deepened before trading was halted prematurely for the second time in the Tokyo Stock Exchange's history, helping to wipe away more than $300 billion in value from the world's second-largest equity market this week.

I certainly hope that all this will stop where it is.

But it does highlight the way in which people have been irresponsible (Economist please note!) with the Japan sustained-recovery story. Much of the investment in Japan stocks has been from overseas investors of late (the Jpanese have rather been buying US assets), people (especially it seems Middle East oil producers) are over-extended and if there isn't a sustained recovery soon then there will be a correction. I just hope the correction won't be too sharp, but after Italy this is clearly the number 2 global danger-spot where we could anticipate trouble at some stage.

OTOH it is hard to blame this particular one on central bankers and their "excessively low interest rates", indeed my argument would be quite the contrary: all the BoJ spin on 'the imminent end to deflation' and the 'ending of monetary easing' is part of what has been fueling the excessive optimism, an excessive optimism which is reflected in over-priced share values.

Meantime the latest European news from the FT reads: European stocks set for sharp sell-off.