Despite a 1.5 trillion yen ($14.4 billion) injection into money markets by the Bank of Japan, Japanese share prices dived in the aftermath of the Lehman Brothers demise, a tumble that was mirrored in the leading Asian markets Tuesday.
Asian share markets tumbled on Tuesday, with Japanese, Hong Kong and South Korean stocks down 5-6 percent, as upheaval on Wall Street fuelled investor uncertainty about a spillover into the region.
Government debt was in heavy demand for a second day with increased speculation about an aggressive U.S. Federal Reserve interest rate cut later, and shares outside Japan hit a 2-year low after one of the most explosive 48-hour periods in the finance world.
Lehman Brothers filed for bankruptcy, Bank of America agreed to buy Merrill Lynch, the Fed expanded its emergency liquidity provisions and American International Group (AIG), once the world's biggest insurer, was seriously constrained by short-term funding trouble.
Investors ditched oil and sought stability in the yen and high-grade debt. Crude prices fell for the sixth of the last seven days, to below $93 a barrel the lowest since February.
"There is no hiding for anyone here. The global money pool -- we all either have to chip into it or get some money out of it, and we're all affected by it," said Credit Suisse chief strategist Adnan Kucukalic in Sydney.
Tokyo's Nikkei share average dropped 4.7 percent to its lowest this year.
Markets in Japan, South Korea, China and Hong Kong had been closed on Monday, and quickly followed the falls in New York, where the Dow Jones industrial average slid more than 500 points, or 4.4 percent, in its biggest one-day point drop since the September 2001 attacks. The Nasdaq Composite Index fell 3.6 percent.
The financial sector was hit by a wave of selling. Shares of Japan's top lender Mitsubishi UFJ Financial Group fell 9.8 percent, Macquarie Group dropped 7.5 percent and led the benchmark Australian index down 2.5 percent.
An MSCI index of Asia-Pacific stocks outside Japan was down 2.5 percent to the lowest since September 2006, and has now slumped 43 percent from a peak last October.
South Korea's KOSPI stock index plunged 5.9 percent, led down by Samsung Electronics, to its lowest since March 2007, and Hong Kong's Hang Seng opened more than 5 percent lower.
Developments were fluid.
AIG secured a $20 billion lifeline brokered by New York State officials on Monday, but Standard & Poor's cut its long-term counterparty rating on the insurer. Moody's also downgraded AIG's senior unsecured debt rating.
"The U.S. financial system is never going to be the same. Events of the last 24 hours are positive, but there is likely more pain on the near-term horizon," said Donald Straszheim, vice chairman of Roth Capital Partners in Los Angeles, in a note.
The U.S. dollar slipped to 104.31 yen after ending overnight in New York around 104.54 yen. It had its biggest single-day decline against the yen on Monday in nine years.
The euro edged down to $1.4218 after ending at $1.4263 on Monday.
The U.S. dollar was dumped on Monday as markets quickly priced in an 84 percent chance of a quarter-percentage point rate cut by the Fed after a meeting later.
Japanese and U.S. government debt yields, which move in the opposite direction to prices, dropped as investors sought safety.
The 10-year Japanese government bond future was up 3 points to its daily limit at 140.35 The yield on the 10-year bond in the cash market fell to a 5-month low of 1.375 percent.
The yield on the policy-sensitive U.S. two-year Treasury note fell to 1.69 percent to the lowest since mid-April.
Oil dropped $3 a barrel to $92.71, its lowest since mid-February. Crude was thrown into the pile of assets being liquidated by investors around the world to fund losing bets and to cut their exposure to risk.
Date created : 2008-09-16