Stocks tumble globally in wake of Fed action
Worried investors watch the dollar weaken further and wonder if U.S. moves can avert a worldwide financial collapse. Japan's traders in turmoil.
TOKYO — Stocks dropped worldwide today as investors fretted about the dollar's continuing fall and questioned whether the Federal Reserve's cut in lending rates and the buyout of Wall Street brokerage Bear Stearns would avert a global financial collapse.
The dollar continued to weaken against the euro and fell to 95.76 Japanese yen at one point, its lowest level since 1995, and down from 99.21 on Friday.
. The yen's sudden climb against the dollar has thrown profit projections awry for Japan's export-dependent economy, the second largest in the world. That sent stock values tumbling. The Nikkei 225 Index was down 3.7%; it is down 23% since the beginning of the year.
Global markets matched Japan's drop. Hong Kong's Hang Seng index fell 5.2%, and the CSI 300 index that tracks stocks in the Shanghai and Shenzhen exchanges fell 4.6%. European markets were also down: London's FTSE 100 was down 3.8%; Frankfurt's DAX fell 4.2% and Paris shares, on the CAC-40, were down 3.5%.
Asian investors interpreted the Fed's actions as further evidence of the depth of the U.S. economic retreat and global credit problems.
"Now Japanese investors completely lost confidence; they're more like jellyfish, just floating around," said Atsuo Mihara, an independent economist in Tokyo.
One Tokyo trader said that he hadn't seen such turmoil in Japan's markets since the 1997 Asian financial crisis. The fire-sale price of Bear Stearns was spooking the markets, he said. "If it's discounted extremely like this, it's like the end of the world."
For Japan, a higher yen takes a chunk out of profits for companies such as Sony and Toyota that sell heavily to American consumers. Most Japanese companies had issued profit forecasts based on a weaker yen, and the rise in the currency has led several to warn of sharply lower profits. Sony has said it loses $62 million in operating profits for every 1 yen gain against the dollar. The company's shares were off 5.7% Monday.
Japan's worries were compounded by a political deadlock over choosing a new governor for its central bank. The term of Toshihiko Fukui, the current head of the Bank of Japan, expires Wednesday, and the main opposition party that controls Japan's upper house has blocked the government's proposed replacement on the principle that the next governor needs to be free from political interference.
