Japan Suffers Biggest Single-day Stock Drop for 20 Years

Asia's financial crisis deepened today after Japan's Nikkei stock average fell almost 10% in its biggest single-day drop for more than 20 years.

The world's second-biggest economy was also rocked by the collapse of an established life insurer: Yamato Life Insurance becomes the country's first major victim of the US credit crunch.

The Nikkei, already reeling from a fall of almost 10% on Wednesday, shed 881 points, or 9.62%, to end the day at 8,276, its lowest close since May 2003.

The index has fallen by an average of 24% this week, more than double the weekly losses seen in the aftermath of the 1987 stock market crash. The Nikkei has lost 46% this year and nearly a quarter of its value since last Friday.

"Selling is unstoppable in New York and Tokyo," Yutaka Miura, a senior strategist at Shinko Securities, told the Associated Press. "Investors were gripped by fear."

On the final day of the Nikkei's worst week in history, yet another orgy of selling was sparked by an overnight drop of 7.3% on the Dow Jones industrial average and news that Yamato, a 98-year-old life insurance firm, had become Japan's first major financial firm to collapse as a result of the US credit crisis.

Yamato, which said it was filing for court protection from creditors, is the first Japanese life insurer to fail for seven years and the fifth largest bankruptcy of the year in Japan. NewCity Residence Investment, a real estate investment trust, also filed for bankruptcy.

Officials issued reassurances that Yamato's failure, with debts totaling 269 billion yen, would not trigger a collapse among other insurers.

"It is the smallest company in our nation's insurance sector," the economics minister, Kaoru Yosano, told reporters. "The incident is a failure of a company that had a unique business model."

The firm, which employs more than 1,000 people, had paid dearly for making higher risk investments and underestimating the extent of the sub-prime crisis.

"The worldwide drop in asset value triggered by the sub-prime shock was unexpectedly large," said Yamato's president, Takeo Nakazono. "We are truly sorry about what has happened and offer our heartfelt apologies."

The Nikkei's plunge was repeated across the region, as investors were spooked yet again by the overnight fall on Wall Street.

Key indexes in Hong Kong, South Korea and Australia were sharply down, while Singapore said it had officially slid into recession for the first time since 2002 after a report showed its economy had contracted 6.3% in the third quarter.

Recession fears are mounting in Japan, where consumption is flat and exporters have been hit hard by the financial maelstrom sweeping across the US and Europe.

With the failure of Wednesday's joint rate cut by several central banks to ease investor fears, pressure is mounting for additional measures when the G7 central bank heads and finance ministers meet in Washington this weekend.

But analysts said the G7 nations were quickly running out of options. "Investors are not so sure that the G7 will announce effective measures to contain the global financial crisis," said Shinko Securities' Miura.

Yosano insisted Japan could pull away from the brink of a US-style credit crisis. "We need to make sure that we don't get pulled too much by global tides," he said. "I hope investors make decisions calmly based on Japan's economic fundamentals."

The Bank of Japan pumped 4.5 trillion yen into the Tokyo markets today, its biggest single-day injection of funds and the 18th consecutive day it has attempted to increase liquidity.