Japan Markets: Nikkei Plunges 11%, Plummets 20% in 2 Days, Hedge Funds Lead Worst 2-Day Stock Rout Since ’87

Japanese Market Plummets 20% in 2 Days on Radiation Threat (Business Insider):

The Nikkei slid 14% last night (3/15/11), and recovered 3% to end net 11% down for the day after the Japanese government banned brokerages from selling. This was after a 6% down day on 3/14 and a poor prior week.

Both the TOPIX and the Nikkei are now down more than 20% for the year on the risk that nuclear radiation will pose a threat to Tokyo.

JAPAN MARKETS-Hedge funds lead worst 2-day stock rout since ’87 (Reuters):

* TOPIX, Nikkei hit 2-yr lows, hedge funds lead way

* More than $700 bln in market cap lost in 2 days

* TSE volumes hit record for second day running

* Yen falls and later recovers on intervention talk

* Insurers seen selling bonds, yields rise despite stock
rout

TOKYO, March 15 (Reuters) – Japanese stocks plunged 10.6
percent on Tuesday, posting the worst two-day losing streak
since 1987, on reports of rising radiation near Tokyo,
suggesting any deterioration at a quake-hit nuclear plant could
trigger more panic selling led by hedge funds.

The yen tripped on talk of intervention and bond yields rose
as investors sold debt to offset losses in the stock market. The
scale and speed of the equity selloff, on record volume for a
second day running, forced fund managers to sit on the
sidelines.

“Even if we wanted to sell today there was very little we
could do,” said a fund manager at a Japanese fund, asking not
to be named because he was not authorised to speak to the media.

“We didn’t sell and waited sidelined because hedge funds
were just dumping stocks in panic.”

At one point the broader Nikkei plunged 14 percent after
Prime Minister Naoto Kan said the risk of nuclear contamination
was rising at the Fukushima Daiichi complex on Japan’s ravaged
northeastern coast, 240 km (150 miles) north of
Tokyo.

Equity futures fell and the yen rallied as risky assets were
dumped. The yen steadied soon after, raising suspicion that
authorities had intervened. The Ministry of Finance declined to
comment on intervention.

In contrast to Monday’s trading, when construction stocks
rose, none of the 225 constituents of the benchmark Nikkei
average gained on Tuesday. The broad TOPIX index of Japanese
stocks has dropped by 16.3 percent this week, the worst two-day
losing streak since the global equity crash of October 1987.

“All focus is on the nuclear crisis. In the situation where
the crisis appears to be worsening, foreign investors, domestic
fund operators are pulling out from Japanese shares,” Hideyuki
Ishiguro, a supervisor at Okasan Securities in Tokyo.

The TOPIX share index plummeted 12.1 percent to
743.10, after posting the biggest full-day decline since the
2008 financial crisis on Monday on record volume.

The Tokyo Stock Exchange’s biggest companies have lost about
$626 billion in value this week. Volumes on the TSE first
section were 5.77 billion shares, a nearly 20 percent increase
from the record peak reached the previous day, itself the
biggest since World War Two.

The Nikkei share average dropped 10.6 percent to
8,605.15, the biggest percentage loss since the global financial
crisis of 2008.

During the trading day Japanese officials tried to calm the
market to little avail and took measures to reduce short
selling, such as placing limits on broker sales of stocks for
arbitrage trading.

Shares of Tokyo Electric Power , the owner of the
stricken nuclear plant, did not trade, although sellers massed
at the indicated price of 1,221 yen on Tuesday. There were no
buyers at that price.

The utility’s credit default swap spreads ,
contracts that protect against debt default and restructuring,
were at 190 basis points, exploding from 40 basis points on
Friday and indicating nervousness about the company’s future.

Since the quake, the Japanese government’s CDS spreads
have widened by around 35 basis points to 115
basis points, near the record 120 basis points reached in
February 2009.

Ten-year Japanese government bond futures gave up most gains
as selling emerged in the cash market, finishing with a gain of
0.36 point at 140.28 after been up more than a full
point at one stage.

Insurance companies were cited behind the selling in cash
JGBs. Benchmark 10-year yields rose by one basis point to 1.215
percent .

The worries about the potential fiscal cost of the crisis
and new bond issuance caused a further back-up in long-term
yields and steepening of the yield curve. The spread between
5-year to 20-year yields spread widened further to 158 basis
points.

“Amid a lot of uncertainty, there are possibilities of
additional bonds issuance with the supplement budget. Investors
including life insurers may back off at the auction,” said
Chotaro Morita, head of fixed income strategy research at
Barclays Capital Securities in Tokyo.

The yen was up slightly at 81.85 per dollar ,
relatively stable in the face of the equity market selloff.

Traders were on alert for signs that Japanese investors were
repatriating funds, a phenomenon pushed up the yen in the wake
of the 1995 Kobe earthquake.

At one point, the dollar spiked against the yen in volatile
trading and dealers suspected the authorities may have
intervened in the market. They later downplayed the idea, with a
large buying order seen exaggerating the move in choppy trade.

The dollar had touched a low around 80.60 on Monday, less
than a yen from the record low of 79.75 yen touched in 1995 on
trading platform EBS.

(Additional reporting by Tokyo News bureau and Masayuki Kitano
in Singapore, Writing by Kevin Plumberg)

By Chikafumi Hodo and Antoni Slodkowski

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