Financial markets across the world are braced for further heavy falls after Yamaichi - the fourth biggest securities company in Japan and the 10th biggest in the world - said last night that it is to close down with estimated losses of over $25 billion.
The size of the losses on stock markets today will be largely dictated by the actions of the Bank of Japan. If the Japanese central bank acts quickly to support the domestic banking system then banking sources believe that the losses can be confined.
If, however, the Japanese financial authorities stand back then financial confidence in the Japanese financial system may disappear with a subsequent selloff in international stock markets.
The board of Yamaichi held a crisis meeting last night, and a company spokesman quoted by Reuters later said the securities firm, with debts of over $25 billion, had decided to seek to go into liquidation.
This will represent the biggest corporate collapse in Japan since the second World War, sending reverberations through financial markets around the world.
The Japanese stock market is closed for a national holiday today, so the first reaction to this latest oriental financial crisis will come from other volatile Far East markets and then filter through to Europe and North America.
The general view among brokers last night was that markets such as Hong Kong and Malaysia will fall heavily, while falls may be more moderate on the less volatile European and North American exchanges.
Dealers said Yamaichi's possible demise could prompt another wave of "sell Japan" this week, weighing on the yen, stock and government bond markets. Such a wave of selling of Japanese securities would undoubtedly filter through to other stock markets.
With American industry increasingly dependent on the Japanese economy and purchasing by Japanese companies, the New York stock market in particular looks very vulnerable as a result of this latest crisis, analysts said.
"I think there's no question that the FTSE in London will lose over 100 points at the opening and Wall Street is also set for a plunge of 2 or 3 per cent," said one Dublin analyst. He added that the extent of the plunge will probably depend on what action the Bank of Japan takes to minimise the effect of the Yamaichi collapse.
The Bank of Japan is to hold a special meeting today to decide whether to extend special unsecured loans to help Yamaichi cope with an expected rush of withdrawals and also to provide Japanese banks abroad with funds in dollars.
Some analysts believe that if Yamaichi is allowed to collapse, Japan's stock market, which has fallen by more than 60 per cent over the past seven years, could crash further, which could have serious effects on other stock markets around the world.
Increasing turmoil in the Japanese and other Far Eastern economies will result in a sharp drop in demand for US goods in Asia. Combined with cheaper imports from the Far East, it could result in a sharp decline in the US trade deficit, which in turn would most likely sending share prices diving.
Share rises or falls on major stock markets, particularly in Japan and on Wall Street, are almost always mirrored in London and Dublin. Analysts have warned that despite last month's so-called correction, when share prices fell sharply, stocks in the UK were still overvalued and susceptible to a big drop.
Seoul shares plunged 5.1 per cent early today as investors worried about the bail-out from the International Monetary Fund. Dealers said news of the decision by Yamaichi to cease trading further hurt the market.
Singapore shares rose 17.44 points on opening, with the market paying little attention to Yamaichi's problems. In Hong Kong the Hang Seng Index lost 71.82 points, but dealers said the fall was not immediately related to the Yamaichi collapse.