TOKYO: Japan's benchmark Nikkei has taken a beating this year, falling by some 40 per cent as investors sell out amid global market turmoil. With the yen strengthening against the US dollar, some market-watchers said the Nikkei may stay depressed for some time.

On the first trading day of 2008, Nikkei closed ominously at 14,691 – its lowest in almost a year and a half. Through the first half of the year, it showed some resilience, staying near the level of 14,000 points in June.

But the sudden collapse of Lehman Brothers in September sent shockwaves across the globe and as an export-driven economy, the outlook for Japan turned ugly.

Susumu Takahashi, vice chairman, The Japan Research Institute, said: "Japan depends on exports heavily. Foreign demand is weak, so we cannot expect recovery in the near future."

The roller-coaster ride extended into October and the fluctuation of the Nikkei continued. October 14 saw the biggest rise ever of 14 per cent, with the number of new participants in the stock market believed to have doubled from September due to affordable share prices.

Nonetheless, the sell-off was fast and furious. Within two weeks, the Nikkei dropped to a 26-year low at 7,162.90. Financial counters were sold off on worries over the health of mega banks such as Mizuho and Sumitomo Mitsui.

"Japanese financial sector is hit by falling share prices and recession. But as far as the sector is concerned, it is not hit by falling securitized products compared with the United States and Euro-area banks because its holding of securitized products is not so big compared with the US and Euro-area banks," said Takahashi.

The Nikkei may have recovered some lost ground towards the end of the year, following measures by governments worldwide to help the global economy.

But the Japanese economy will likely be mired in recession for at least the next six months, and some have warned that the Nikkei could hit as low as 6,000 by March.

Noriko Hama, vice dean, Doshisha University Graduate School of Business, said: "We do need to be prepared for worse news. I think we need to look at the worst possible case in Nikkei index. It can easily reach 5,000."

Market-watchers are also keeping a close eye on the Japanese currency.

The yen hit a 13-year high of 87 yen to the US dollar on December 18 and some analysts said it could strengthen even further in 2009, adding more pressure on the shares of export giants such as Sony and Toyota.


- CNA/so