Japanese stocks ended at a nearly three-month closing low on Friday after a wave of late selling on a report that Mizuho Securities, the unlisted brokerage arm of Mizuho Financial Group, may post a subprime-related loss of over 100 billion yen and delay a merger.
The report in the Nikkei business daily raised fears that more such losses may lie ahead and dragged financial stocks, such as Mizuho Financial, sharply lower. A strong yen also contributed to sales by hitting exporters after Wall Street fell on Thursday.
The Nikkei closed down 1.2 percent at 15,583.42 after dropping 188.15 points, its lowest close since August 17 -- the day which saw the Nikkei hit 15,262.10, its lowest point so far this year.
In six consecutive losing sessions, the benchmark Nikkei has lost 7.6 percent. This week alone it lost 5.65 percent.
The report about Mizuho raises the possibility that still more subprime-related losses may come to the fore, said Takahiko Murai, general manager of equities at Nozomi Securities.
The news spooked investors, sending Mizuho Financial down 5.7 percent to 531,000 yen. Sumitomo Mitsui Financial Group suffered even more, tumbling 5.9 percent to 750,000 yen. But sentiment had already been nervous, with market players looking anxiously ahead to U.S. trade after a sharp fall in the Nasdaq after tech giant Cisco Systems signalled the credit crisis was hurting demand from key customers.
If the yen continues to climb and U.S. stocks fall, it's entirely possible that Tokyo shares could break below the year's low, said Yutaka Miura, senior technical analyst at Shinko Securities. The broad TOPIX index closed at 1,494.35, its lowest close since Aug. 17, after losing 1.5 percent.
Other market participants agreed that volatile trade next week is possible depending on what happens overseas later on Friday, especially the growing uncertainty about long-term prospects for the U.S. economy.
INVESTOR NERVES, HIGH-TECH FALLS
Federal Reserve Chairman Ben Bernanke warned that the U.S. economy faced risks on both the growth and inflation fronts, deepening concerns already stoked by Cisco.
Cisco's chief executive said late on Wednesday the largest maker of computer networking equipment had suffered a dramatic drop in orders from banks and retailers, triggering concerns about growth prospects for the company, which relies on business spending.
High tech Japanee shares such as Trend Micro slid, taking the market with them.
Trend Micro, a domestic leader in anti-virus software, tumbled 10.4 percent by its daily limit to 4,290 yen and becoming the biggest drag on the Nikkei 225.
Industrial robot maker Fanuc Ltd extended its losses, sliding 1.8 percent to 11,970 yen. Tokyo Electron was down 2.9 percent at 6,020 yen, weighing on the Nikkei before the Mizuho report came out.
One bright spot was Nikon Corp, which jumped 10 percent to 3,740 yen, after it lifted its annual profit outlook above market forecasts.
The world's No.2 maker of professional cameras posted a 36.8 percent gain in quarterly profit on Thursday on demand for its entry-level digital cameras and raised its annual profit outlook above market forecasts. It was the largest positive contributor to the Nikkei.
Isetan Co Ltd jumped 6.4 percent to 1,522 yen after Nikko Citi raised its rating to buy/medium risk from hold/medium risk, saying it views the department store's first-half earnings as a positive surprise.
The company posted a 7.6 percent gain in operating profit for the six months ended in September on strong sales at its flagship store in Tokyo and overseas branches. It also raised its full-year operating profit outlook to 33 billion yen ($290 million) from the previous forecast of 31 billion yen.
Trade was relatively active, with 2.3 billion shares changing hands on the Tokyo exchange's first section, compared with last week's daily average of 2.1 billion.
Declining stocks beat advancers by a ratio of two to one.