Japan Shares Plunge to Lowest in Two Decades on Capital Concern

By Masaki Kondo

Oct. 27 (Bloomberg) -- Japan's stocks dropped to the lowest in more than two decades on concern tumbling share values will drag down capital at financial companies.

Mitsubishi UFJ Financial Group Inc. and Mizuho Financial Group Inc., the nation's biggest listed banks, sank 15 percent on media reports they may raise capital through sales of new shares. Aiful Corp., Japan's fourth-biggest consumer lender by value, slid 14 percent, and Aioi Insurance Co. declined 20 percent.

``In this kind of market that's moving without sensible reasons, only God knows what's going to happen tomorrow,'' said Yoshinori Nagano, a Tokyo-based senior strategist at Daiwa Asset Management Co., which manages about $96 billion. ``That's why people are so scared of what's ahead of them and sell whatever they have to avoid losses.''

The Nikkei 225 Stock Average lost 486.18, or 6.4 percent, to close at 7,162.90 in Tokyo, the lowest close since October 1982 and capping a four-day plunge of 23 percent, the most since at least 1970. The Topix index fell 59.65, or 7.4 percent, to 746.46, the lowest level since January 1984.

Mitsubishi UFJ may sell new shares to raise as much as 1 trillion yen ($10.6 billion) to improve its finances depleted by devalued stockholdings, the Nikkei newspaper reported yesterday. Mizuho and Sumitomo Mitsui Financial Group Inc., Japan's third- largest listed lender, are also considering raising new capital, broadcaster NHK said.

Government Measures

Japan's Prime Minister Taro Aso ordered officials to draft measures to help stabilize financial markets as early as today. Measures will include stronger oversight of short-selling of stocks and the purchase of shares held by the nation's banks. The Topix has fallen 45 percent in the year through Oct. 24, wiping out $1.6 trillion in market value.

``Banks are likely to cut lending to businesses, given a decline in shares is hurting their capital, and consumer lenders will be among the first ones to suffer,'' said Naoki Fujiwara, who oversees the equivalent of $720 million at Shinkin Asset Management Co. in Tokyo. ``A slump in the stock market will also reduce insurers' revenue.''

Nikkei futures expiring in December retreated 5.8 percent to 7,180 in Osaka and slumped 6.1 percent to 7,180 in Singapore.

To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net.