Why the Tokyo Stock Exchange Wants People To Calm Down

Atsushi Saito, the president of the Tokyo Stock Exchange, penned a letter to investors late last night noting that the exchange remains open but requesting investors and traders conduct their business in a ‘calm and orderly’ manner

The letter, reprinted on the Financial Times’ Alphaville blog, cited the recent earthquake and subsequent tsunami in the region as the cause for the drop in Japanese stocks:

‘The Tokyo stock market has been experiencing sharp drops over the last couple of days. I suspect that this has mainly been caused by increasing concerns about the degradation of social infrastructure following the recent ‘2011 off the Pacific coast Tohoku Earthquake’ and subsequent nuclear power plant accident. Market participants’ concerns have also been further accelerated by the conflicting information on these happenings…

‘Under these circumstances, I believe that the Tokyo Stock Exchange in its role as an important social infrastructure should continue to provide opportunities for stock trading. I would appreciate it if all investors and trading participants would respond in a calm and orderly manner.’

The letter to investors apparently paid off. On Wednesday, Japanese equities increased showing positive signs of investor confidence from international brokers (to whom the letter was said to be penned for).

Phil Kennedy, a London-based Asia equity sales broker at Mizuho International, had this to say on the matter, reports Alphaville: ‘The speed and severity of this week’s declines remind us of the similarly extreme moves seen in 2008 as Lehman’s demise became an inevitability.’

Kennedy went on to liken the events of the Tokyo market in the past two days to the 9.4 per cent drop to the Nikkei 225, saying:

‘Futures had breached levels at which the brokers became forced sellers of the Nikkei 225′s underlying stocks. The range of options and derivative products they’d written and sold on to retail customers had backfired… it was the DOMESTICS who had killed the market!’

How the Tokyo Stock Market will look over the course of the next week or two remains to be seen. As news filters from Japan to the US and UK media regarding nuclear plant explosions and manufacturing meltdowns, the markets continue to remain volatile. And the question remains: who’s really selling Japanese stocks?

Source: Alphaville

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