The Japanese government took the rare step of appealing for calm yesterday amid signs that investors were losing confidence in the country's financial institutions.
Mr Hiroshi Mitsuzuka, the finance minister and Mr Yasuo Matsushita, governor of the Bank of Japan, issued a joint statement "strongly requesting people not to be guided by groundless rumours and to act sensibly".
The warnings followed the collapse yesterday of the shares of several financial institutions. The Nikkei 225 average was up 178.02 points, or 1.12 per cent, to 16,045.55 but shares in the broking and banking sectors fell an average 7 per cent and 2.6 per cent respectively, though some shares plunged more than 30 per cent.
Two of Japan's big three securities companies dropped sharply. Daiwa Securities tumbled a maximum 100 yen to Y446 and Nikko Securities fell Y72 to Y312. Analysts said there were fears the companies would be implicated in illegal off-balance sheet dealings similar to those that brought down Yamaichi Securities, the country's fourth-largest broker, earlier this week.
Seven second-tier brokers are now quoted below the danger level of Y100.
"The markets are highly nervous and are losing confidence in the financial system," said Mr Peter Tasker, strategist at Dresdner Kleinwort Benson. "After the failure of Yamaichi, it is clear that size is no protection."
Analysts said the risk of investing in Japan had increased substantially, because it was no longer certain that the ubiquitous corporate families would protect all their members.
But investors were finding it difficult to assess the risks facing individual companies because of poor disclosure and fears of further hidden debts or losses similar to those uncovered at Yamaichi.
Bank shares also tumbled, following the announcement by Tokuyo City Bank, a regional bank, early yesterday morning that it was closing its business. Shares in Daiwa Bank, one of the country's largest, fell 27 per cent to Y130. They have halved in value in two days' trading. Long Term Credit Bank dropped Y80, or 29 per cent, to Y196, while Mitsui Trust's shares dropped 32 per cent to Y167, Fuji Bank fell a maximum Y100 to Y626, and Yasuda Trust 38 per cent to Y79.
Adding further to the banks' plight, Moody's, the US ratings agency, said it was considering downgrading the debt of Long Term Credit Bank, Mitsui Trust, Yasuda Trust, Nippon Credit Bank and Chuo Trust. If the last two are downgraded, their debt would have junk-bond, non-investment status. It was a similar downgrading that precipitated the collapse of Yamaichi.
Senior finance ministry officials insisted they did not believe any more banks would fail.
