Lehman Brothers, a 158-year-old investment bank which has been choked by the credit crisis and falling real estate values, collapsed Monday after British bank Barclays PLC withdrew its bid to buy the investment bank, sending troubles to a broad range of financial institutions and the global economy. As the world's second largest economy, Japan is expected to be one of the surest victims.
The ripple of the Lehman-triggered turmoil seems to spread to the financial sector as well as the stock and foreign exchange market in Japan.
Financial institutions to be badly struck
Japan's financial sector is bracing itself for the bankruptcy of the investment bank as eight major banking groups own a combined 320 billion yen (3.05 billion US dollars) in bonds or loans tied to the Lehman Brothers. And more than 40 percent, or some 140 billion yen (1.33 billion dollars) of the total amount, is not secured with collateral or other means.
Take the Sumitomo Mitsui Financial Group for example. The banking group forecast a loss of about 10 billion yen (95.24 million dollars) out of the 103 billion yen (981 million dollars) in bonds or loans linked to the Lehman Brothers. Things seem to be even worse for the Mizuho Financial Group. The bank is projected to incur a loss of about 20 billion yen (190.48 million dollars) ,accounting for half of the 40 billion yen (381 million dollars) it holds in bonds or loans.
Japan's banks and insurers expect a total of 245 billion yen (2.33 billion dollars) of potential losses from the collapse of Lehman, Bloomberg reported.
Regional financial institutions are also easy prey for the turbulence brought by Lehman's failure as thirty regional banks possess 61 billion yen (581 million dollars) in its bonds or loans. In addition, there are 195 billion yen (1.86 billion dollars) of Lehman-issued smurai bonds circulating in Japan.
Should the Lehman Brothers default on its debts, the impact on the Japanese financial sector would be catastrophic.
Tokyo stocks hit new low
Japanese financial markets were closed Monday for a national holiday, when the fourth-largest US investment bank filed for bankruptcy.
Tokyo stocks, however, nosedived nearly 5 percent on Tuesday to hit a new low in more than three years amid mounting concerns over a global financial turmoil after the Lehman Brothers collapsed. The benchmark Nikkei Average plummeted 605.04 points to 11,609.72 points, its lowest closing level since July 8, 2005, when it finished at 11,565.99.
Though the Nikkei index went up 1.21 percent to 11,749.79 points on Wednesday, the rebound proved to be short-lived as the general downtrend for the Tokyo market returned Thursday. The Nikkei index plunged 260.49 points, or 2.22 percent to close at 11,489.30.
Meanwhile, the Tokyo foreign exchange market also suffered a slump Tuesday when the US dollar dived to the 103 yen range from the 107 yen level Friday, hitting a nearly four-month low amid fears of a financial crisis.
Though the dollar regained ground through Thursday's 5 p.m. quote of 105.18-21 yen, it still takes time for the dollar to restore to the normal level when the gloomy financial outlook makes many currency market watchers remain skeptical about the strength of the dollar.
And the appreciation of yen against the dollar could be easily felt by Japan's export-oriented enterprises.
Measures adpoted to tackle falloout of Lehman's collapse
As financial institutions competed with each other for cash and pushed unsecured overnight call money rates well above the central bank's official target of around 0.5 percent, the Bank of Japan (BOJ) on Thursday poured 2.5 trillion yen (23.9 billion dollars) into Tokyo's money market to regulate the market in short-term finance between banks and other financial institutions.
The input of the money came for a third straight day of emergency operation following two previous day's injection of 2.5 trillion yen and 2 trillion yen (19.05 billion dollars) respectively, bringing the aggregate amount of emergency to 8 trillion yen (76.2 billion dollars).
Earlier Thursday, Economic and Fiscal Policy Minister Kaoru Yosano extended Japan's willingness to work with the US and EU financial authorities to address the global financial market turmoil after exchanging views with leading figures of Japan's business and financial communities over the impact of global financial chaos on Japan's economy.
As the problems the US financial system is faced with cannot be solved overnight and the restoration of order in the financial market takes time, Japan is ready to offer every possible coordination, he said.
Later in the day, six central banks such as the BOJ, the US Federal Reserve and the European Central Bank decided to take coordinated measures to mitigate the negative effect exerted by the current turmoil in the global financial market.
As part of the measures, the BOJ has concluded a currency swap deal worth 60 billion dollars with the Fed to provide dollar funds to Japan's worst-hit financial institutions.
To better cope with the grave financial situation, the BOJ convened an extraordinary meeting of its policy board members Thursday to deliberate on its monetary policy again, and upheld its Wednesday's decision to retain the benchmark interest rate unchanged at 0.5 percent.
(Xinhua News Agency September 19, 2008)