Worries about a new banking crisis in Japan are mounting because of significant losses in the Japanese stock market this week. The key market index has dropped to lows not seen in nearly two decades.
Japan's benchmark Nikkei index fell 142 points Wednesday, 1.5 half percent. That follows a three percent loss Tuesday, sending the index to a 19-year-low.
This is especially bad news for Japan's ailing banks, which have large stock holdings. As the value of their shareholdings fall, it becomes harder for banks to write off their huge portfolios of bad loans. Many banks are so overburdened by bad loans that they could be unsound.
As the Nikkei fell toward 9,000 points, the government's chief spokesman said the government does not intend to take immediate action. Yasuo Fukuda apparently was countering speculation that the government will intervene in the markets.
Mr. Fukuda says the slight drop for stocks is in line with the slump in the U.S. and European markets. He says in such a situation, it is necessary to keep a close eye on the market.
But some analysts say such comments prompt more selling, because investors think the government does not realize the severity of the situation. Some members of Prime Minister Koizumi's party want the government to draft a supplementary budget to stimulate the economy. Other politicians and some business leaders want the government to extend its unlimited guarantees of bank deposits. Next year, the government plans to limit deposit guarantees, which worries many Japanese who have most of their savings in bank accounts.
Japan's key financial newspaper, the Nihon Keizai Shimbun, calls the stock market plunge a warning from investors to the government. In its Wednesday edition, the influential newspaper said that to keep the stock market from becoming a bottomless pit, the government must make real structural reform.