Nikkei struggles under debt weight

Staff and wires

Concerns ranging from domestic bad loans to global security are dragging down the Nikkei

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TOKYO, Japan -- Tokyo's Nikkei average fell three percent on Monday morning, with banks and debt-ridden borrowers stumbling further on growing fears a tougher government line on bad loans would trigger a wave of corporate failures.

As of 0852 HKT (0052 GMT), the Nikkei was down 272.26 points or 3.02 percent at 8,755.29, its lowest in almost two decades.

The TOPIX index was down 2.85 percent at 866.17.

"Sentiment is really shot right now," Koichi Seki, equity manager at Chuo Securities, told Reuters news agency.

"Investors are scared of the impact of rising bankruptcies. And on top of that worries of a war in Iraq and a slowdown in the U.S. economy are really weighing."

On the domestic front, nervous investors dumped shares in banks and troubled borrowers such as retailer Daiei Inc, betting that the government would force banks to tighten the screws on ailing companies, eating into lenders' capital as they wrote off loans and triggering a wave of bankruptcies.

Mizuho Holdings fell 5.19 percent to 202,000 yen and UFJ Holdings slid 7.8 percent to 201,000, adding to a 32 percent loss.

Inflation target

The Bank of Japan denied on Monday that Economics Minister Heizo Takenaka asked for it to adopt an inflation target when he met Governor Masaru Hayami last week.

The Asahi Shimbun reported on Sunday that Takenaka, who is also financial services minister, asked Hayami at a meeting on Thursday for the central bank to adopt an inflation target.

"There was no specific talk about financial system stability or monetary policy at the meeting. The reports are untrue," a spokesman for the central bank said.

Takenaka told a meeting in Malaysia on Sunday that additional steps would be sought from the BOJ as part of a comprehensive approach to tackling Japan's economic malaise.

Takenaka has long called for the BOJ to adopt an inflation target to combat persistent deflation in the Japanese economy.

Hayami and other BOJ officials have rejected the idea of inflation targeting, saying it is not a viable option when prices are falling.

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