Japan: Crisis? Which crisis?

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By:
Chris Leahy
Published on:

Japan might finally be on the road to recovery from its economic downturn but recent events have revealed a crisis of a different sort. After a human input error to a trade by Mizuho Securities in December that the Tokyo Stock Exchange trading system refused to cancel, despite requests from the broker, the TSE was rocked by another crisis in January when panic selling forced the exchange to shut early since the trading system was unable to cope with the flood of orders.

The selling was sparked off by a raid by Japanese prosecutors on the Tokyo offices of internet company Livedoor, a controversial business that had upset the Japanese corporate establishment because of its aggressive bid tactics. Livedoor is facing allegations of market manipulation and accounting fraud. The shares of the company were quickly suspended.

The trading fiasco has caused uproar in Japan, coming so soon after a similar occurrence last year. In November, the trading system crashed and trading was suspended after renewed buying interest in Japanese equities forced volumes through maximum limits.

Critics are pointing not just to the integrity of the trading system but also to TSE management failings. Many investors were furious at TSE management for allowing Livedoor to restart trading the day after the suspension just as the allegations against the company widened. Critics say this exacerbated the sense of panic in the market, causing TSE management to warn of a possible breach of trading capacity. Some foreign investors believe the problems lie with a lack of accountability among Japanese management.

“What has been the result of the TSE trade scam?” asks a Tokyo-based foreign fund manager. “The president resigned. That shouldn’t happen. He should be told: ‘No! You stand up and fix the problem. You may get fired but you’re not allowed to resign.’ Here, there’s a willingness to take the blame for things but not the accountability.”

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