Tokyo clampdown on "naked short selling" boosts stocks

Posted by: Ian Rowley on October 28, 2008

After Tokyo stocks slumped to an astonishing 26-year low yesterday, some market watchers moaned that the Japanese authorities had failed to do enough to combat the soaring yen. The concern was understandable: despite a rushed statement from the G-7 expressing concern about the currency’s rapid rise, there were few signs of hard action and the currency barely budged from around 93 to the dollar.

Today, though, a lunchtime announcement of a different kind seems to have given investors a little respite. Just after noon the Tokyo stock exchange ordered members to stop accepting “naked short selling”, a practice which involves the shorting of shares without even borrowing them first (thankfully, it has nothing to do with traders losing rather more than their shirts or the drunk British businessman who recently jumped in the moat surrounding Japan’s Imperial Palace). Apparently, the Japanese government had planned to outlaw the practice on November 4, but brought the moves forward after the recent carnage. That helped the Nikkei recover, closing up 6.41% at 7,621 points, regaining about a fifth of 2,100 points shed in the previous four trading sessions.

Despite signs of government invention in the currency markets, the yen has also eased slightly to 95 to the dollar after the short selling ban. Still, while better than 93 to the dollar, that’s unlikely to do much to assuage concerns at Japan’s exporters. Today, Honda became the latest company to further revise down its full year earnings forecast. Just as worrying, for the remainder of the financial year, which for Honda ends at the end of March,it makes the projections assuming a dollar-yen rate of 100 and euro-yen rate of 135 (compared to 118 today). That means that without further weakening of the yen, Honda will fall short of even the revised target. It wouldn’t be the only one.

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Bloomberg Businessweek’s team of Asia reporters brings you the latest insights on business, politics, technology and culture from some of the world’s biggest and fastest-growing economies.

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