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TOKYO-- News that

Standard & Poor's

had affirmed Japan's AAA sovereign debt rating did little to stop institutional investors from selling blue chip shares Tuesday to bump up their earnings, ahead of the March 31 fiscal year end.

Tokyo indices closed lower for the second straight day, even though the S&P rating came in contrast to last week's warning by

Moody's Investors Service

that Japan may be downgraded. The

Nikkei 225

index fell 153.17, or 0.8% to 19,390.58, while the


index, comprised of shares listed on the

Tokyo Stock Exchange's

first section lost 36.13, or 2.2%, to 1644.59. The


small-cap index was 5.17, or 4.0% lower, at 123.85, while Nikkei


shares lost 73.06, or 2.7%, to 2640.67.

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(SNE) - Get Sony Corp. Report


Yahoo! Japan

down, there were no incentives to buy blue chips or tech shares today," noted one trader at a Japanese house.

Even though investors are expecting robust sales for Sony's PlayStation 2 game console that goes on sale March 4, selling by foreign investors overpowered gains that had seen the stock hit a new intra-day high of 33,250. Sony fell 1300, or 4.1%, to 30,350 while Yahoo! Japan shed 7 million, or 4.3%, to 156 million. Yahoo! Japan's parent


also declined 15,000, or 8.4%, to 163,000.

The market also suffered as life insurance firms and government-affiliated financial institutions unloaded holdings in blue chips, as they rush to book profits before the end of fiscal 1999. Traders expect the selling to continue until mid-March. The Nikkei 225 index may test support of 18,700 by then, they said.

Despite news that


may start talks with

America Online



Time Warner


on possible tie-ups in Japanese digital broadcasting and telephones, Toshiba shares fell 15, or 1.7%, to 891.

Investors chose to ignore an announcement by S&P made late Monday, when it affirmed Japan's top-notch rating only a week after rival

Moody's Investors Service

placed Japan's Aa1 rating on review for a possible downgrade. Aa1 is Moody's second-highest rating, while S&P's AAA is the highest rating the agency awards.S&P said its rating was based on Japan's large foreign asset position (totaling around $1.2 trillion) and diverse export-oriented economy. Japan's high public sector debt is "manageable" in the context of Japan's economic and external strengths, the agency said.

Takara Shuzo

, a current biotech favorite, rose 100, or 3.7%, to 2790 when it announced plans to buy the rights to a patent for fast DNA sequencing technology from an Australian biotech start-up.

Meanwhile, the dollar hit a 6-month high against the yen at 111.73 yen early in the trading day, before falling back to 111.23 yen. Currency dealers said the dollar's strength had mainly to do with the euro's edging higher against the yen, which sparked some yen selling. The euro rose above 110 yen for the first time since Nov. 8 last year.

Another flare up between China and Taiwan depressed Hong Kong's

Hang Seng

index, which fell 67.20 to 16,255.17. At one point, the index was down by over 300 points.

On Monday, in an announcement likely calculated to influence Taiwan's March 18 presidential elections, China threatened military force against Taiwan if the island refused to hold reunification talks. The mainland Chinese government, which regards Taiwan as a renegade province, insists on a policy of "One China," while current Taiwanese president Lee Teng-hui has called for relations with China to proceed on a "state-to-state" basis. Some experts say this has the potential to cause the biggest crisis in China-Taiwan relations since China conducted military exercises off Taiwan in 1996, leading the U.S. Navy to send battleships to the area to support Taiwan.

In addition to the military story, the lack of developments in

Pacific Century Cyberworks'

intended bid for

Cable & Wireless HKT


also depressed the market. PCCW fell 2.10, or 8.8%, to 21.90, while C&W HKT slid 1.00, or 3.9%, to 24.55. Both have gained handsomely this year, with HKT up by 50% at one point in this month alone. Reports in the Hong Kong press said that PCCW was trying to arrange a $10 billion loan to finance the purchase.

Union Bank (Hong Kong)

rose 0.30, or 4.5%, to 7.00 on unconfirmed rumors that it may be acquired by the

Industrial and Commercial Bank of China

in the next few days.



index also declined 180.74, or 1.8%, to 9731.93.