Japan's stock indexes nosedived and the yield on the government's benchmark bond turned negative for the first time Tuesday while the yen surged to a 15-month high.
The day of tumultuous trading casts deeper concern about the ability of the Japanese prime minister's "Abenomics" reforms to reverse the country's long moribund economy, the world's third largest.
The Nikkei 225 stock index plunged 918 points, a steep 5.4 percent decline. Every industry category lost ground, with the financial and export sectors hit the heaviest.
When the yield of the 10-year Japanese Government Bond fell below zero on Tuesday it was the first time such a bond for a G7 nation had a negative yield. The five-year JGB yield also fell to a record low and was the first time in five years that it yielded less than the two-year bond.
High demand for bonds pushes down their yields and market watchers say they observed a strong desire Tuesday to buy Japanese sovereign debt as a safe place to park cash at a time of rising worry about the global economy.
Japan's central bank decided last month to introduce negative interest rates on a portion of deposits for some financial institutions at the Bank of Japan.
"It's supposed to motivate the banks to loan, but the banks need to fix their head first," said Todd Walzer, chairman and CEO of iland6 Capital, which is involved in business development in Japan for Israeli high-tech companies.
Japanese banks "will loan endlessly to zombie companies, and not loan to good companies that don't fit their image," Walzer, who has worked in Japan for 25 years, told VOA.
Japan's growing number of entrepreneurs complain that the country's banks do not see them as fitting that image.
More entrepreneurship needed
William Saito, a venture capitalist and special advisor to Japan's Cabinet, told VOA the only way for Japan, with an aging and declining population and reluctant to open to immigration, to again achieve high growth is to encourage entrepreneurship.
"Large corporates have money, name and management skills, -- exactly things that ventures don't. However, ventures have innovation, speed and creativity that large companies need. It's very complimentary, so we need to figure out how to combine these two and make a 1+1=3," said Saito.
‘Abenomics’ has not been the answer
Prime Minister Shinzo Abe launched a bold economic revival drive in late 2012, known as Abenomics, with fiscal expansion, monetary stimulus and what was supposed to be sweeping reforms. But that last arrow has missed its mark with critics, who say that in addition to improving corporate governance and reforming such sectors as agriculture and energy it is essential to change labor laws, get more women in the workforce and lower the barriers for immigrants.
Japan's losses have worldwide effect
Tuesday's woes in Tokyo also upset stock traders in the other markets in the region that are open during the lunar new year. In Australia, the ASX 200 dropped nearly three percent.
Currency dealers in Asia described a panic situation with European funds selling dollars -- of which they already have in ample amounts -- and buying the yen and the Swiss franc, seen as safe havens in an uncertain time.
A stronger yen makes Japan's exports more expensive, highly undesirable for an economy in the doldrums and reliant on sales of its products in other countries.
Japan's finance minister, Taro Aso, termed Tuesday's surge for the yen as "rough."
“We will continue to carefully monitor developments in the currency market,” Aso told reporters.