Yen slumps as bank worries grow

Japanese shares are back at 1985 levels

The Japanese currency fell sharply on Wednesday to levels not seen since the summer of 1999 as fears of a new banking crisis fuelled the country's political and economic turmoil.

Japanese Prime Minister Yoshiro Mori bows to parliament after a motion against him is rejected.

"People are more worried about Asia than they are about the US, so the play right now is to sell yen," said Dai Ichi Kangyo Bank trader John Cholakis.

At its lowest level, one dollar cost more than 121 yen, while one euro cost more than 110 yen.

The yen was sent lower by mounting fears that a new crisis is about to rip through Japan's heavily indebted banking sector.

The world's biggest banking group Mizuho Holdings and a further 18 major Japanese banks suffered blows when the ratings agency Fitch expressed concern about their credit worthiness.

Debt worries

Renewed doubts about the banks' ability to repay debts worth 64 trillion yen (£365bn, $529bn), equivalent to 10% of the country's gross domestic product (GDP), led Fitch to place them under a so-called "negative review".

A Japanese man is queuing for work as the unemployment rate reaches 4.9%.

In addition, there were worries about the value of the banks' large share holdings in Japanese companies after Tokyo's stock market failed to bounce back on Wednesday from lows not seen since the mid-80s.

The agency's concerns were announced after the Tokyo stock market closed on Wednesday, but Japanese shares slid in European and US trade.

Tokyo is braced for further falls when trading starts on Thursday.

"The situation in Japan is really very ugly," said SG Cowen Securities' chief investment strategist Charles Pradilla.

People feel the pain

Back in the real world, Japan's economic woes are felt by ordinary people as unemployment rises to record levels of 4.9%.

Homelessness is rising in Japan.

Homelessness, a phenomenon almost unheard of a few years ago in Japan, is becoming more widespread.

And deflation - that is falling prices - is beginning to hurt businesses across a range of sectors.

Increasingly, people blame the government.

Political vacuum

The approval ratings for the beleaguered Prime Minister Yoshiro Mori have fallen below 10% as Japan's economic difficulties dominate the political agenda.

"There is no time to waste. Prime Minister Mori's cabinet should resign en masse now," cried the leading newspaper Yomiuri Shimbun on Wednesday.

But an attempt by the opposition parties to have him removed was turned down by Mr Mori's allies in parliament on Wednesday.

Mr Mori is unpopular even among his allies, but it appears that they need him, at least until a clear successor emerges from the wings.

We cannot hold elections unless we can revamp the economy and confirm a sign of [recovery]

Shizuka Kamei
Liberal Democratic Party

His supporters urge his critics to continue backing him ahead of Senate elections due in July.

"We will be busy with economic measures in April and May," said the policy chief of the ruling Liberal Democratic Party, Shizuka Kamei.

"We cannot hold elections unless we can revamp the economy and confirm a sign of [recovery]."

A programme including tax cuts and the creation of a special fund to absorb the banks' shareholdings, was proposed by the leading coalition last Friday.

A task force, hastily compiled of both coalition members and opposition politicians, will meet on Thursday to discuss a proposed economic programme that will aim to give the stock market a shot in the arm and bring the Japanese economy back from the brink.