Cablegate: Japan Market View: Worst Two Day Drop in 17 Years

VZCZCXYZ0011
PP RUEHWEB

DE RUEHKO #0163 0220941
ZNR UUUUU ZZH
P 220941Z JAN 08
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC PRIORITY 1144
RUEATRS/TREASURY DEPT WASHDC PRIORITY
INFO RUEHSS/OECD POSTS COLLECTIVE PRIORITY

UNCLAS TOKYO 000163

SIPDIS

SIPDIS

TREASURY FOR DOHNER, POGGI

E.O. 12958: N/A
TAGS: ECON EFIN JA
SUBJECT: JAPAN MARKET VIEW: WORST TWO DAY DROP IN 17 YEARS

1. (U) In its worst two-day drop in 17 years, Japan,s
benchmark Nikkei 225 Stock Average dropped 5.6 percent on
Tuesday, January 22. The broader Topix index fell 5.7
percent, as Japanese markets mirrored Asian markets,
downward trajectory. The Nikkei,s 9.3 percent fall over the
last two days of trading removes 39.2 trillion yen ($369
billion) in value from the Tokyo Stock Exchange.

2. (U) In the midst of global financial market turmoil,
Tokyo,s financial sector remains relatively healthy, as
Mizuho Financial Group,s recent $1.2 billion investment in
Merrill Lynch suggests. On the heels of non-performing loan
crises during the 1990s, major Japanese banks do not appear
to have significant direct exposure to the same sub-prime
investment risks that are plaguing their American and
European counterparts. Major Japanese banks have taken
write-offs to the existing sub-prime investments they hold,
however the amounts are relatively small compared to their
annual profits and capital base.

3. (U) In addition, the January 29 scheduled $5 billion
stock swap buyout of Nikko Cordial Corp. by Citigroup Inc. is
still on track, despite Citi,s own recent spate of sub-prime
troubles. The swap ratio will be calculated based on the
three day average price of Citigroup, Inc. stock from January
15-17 of $26.35. Since this represents a 37% drop in
Citigroup,s stock price from this fall when the deal was
reached, Nikko Cordial shareholders will now receive more
Citigroup stock for each share of Nikko Cordial that they own.
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