Japanese stocks in bear market on rising yen

Japanese stocks slid into bear market territory with the yen rising to its strongest level against the US dollar after the Bank of Japan launched a  package of measures to spur the economy.

The rout in Tokyo, spilling over into Asia, pulled down European markets in early trading today with commodity prices ruling weaker.

Japan's Nikkei 225 index was down 6.4 per cent and at its lowest point since 3 April, the day before the Bank of Japan announced a new phase of monetary easing by promising to double the monetary base over two years. The broader Topix index retreated 4.8 per cent.

The unravelling also meant the Nikkei was down 22 per cent from its peak in May, on prospects of the US Federal Reserve starting tapering its bond-buying programme. A fall of over 20 per cent fall is an official bear market.

The volatility comes after news Tuesday that the Bank of Japan was keeping monetary policy where it was. There were expectations among some investors of further easing measures in response to recent market volatility. The expectations were belied leaving the investors feeling short changed.

Hedge funds particularly had been cutting their long Japanese equity positions and short yen positions which they had built up over the past few months over concerns about central bankers taking easing the stimulus.

World stocks took a beating and the dollar fell sharply today with the sell-off on global financial markets accelerating in thrall to central bank stimulus.

European shares took a plunge, dropping 1.3 per cent with the opening, following the second biggest fall in Japan's Nikkei in over two years which saw Asian shares down at their lowest level of the year.

The dollar came in for heavy mauling, slumping 2 per cent against the yen as investors spooked by the plummeting Japanese stock market pulled back on hedges. The dollar was down as low as 93.90 yen, its lowest since 4 April and giving up most of the gains made after the Bank of Japan's announcement of heavy monetary easing that day.

The US currency fell to a 3-1/2 month low against the euro with the common currency buying $1.3385.

The rout came as noises were heard about the US Federal Reserve, which is to meet next Tuesday and Wednesday, scaling back its huge asset purchase programme.

In the debt market, German government bonds were up 34 ticks with investors going for traditional safe-haven paper. The recent selling of euro zone periphery debt also resumed with the auction of 3- and 15- year Italian debt to be held later in the day.