Lehman Brothers' fall sparks concern for Japanese economy

TOKYO: The collapse of major US securities house Lehman Brothers Holdings Inc continued to roil financial markets worldwide today as alarm spread over the fate of other Wall Street names hit by the fallout from the subprime mortgage crisis.

The impact of Lehman's collapse has even reached Japan - a country relatively unscathed by the US housing turmoil - as investors panicked that a further damper on US consumption could push the export-dependent economy into recession.

Japan's key Nikkei index plummeted nearly 5 per cent today, closing at its lowest level in more than three years and outstripping sharp overnight falls in New York.

The dollar also fell to a two-month low in the upper 103 yen level in Tokyo after the fourth-largest US securities house filed for bankruptcy yesterday in New York.

Market experts said the current financial turmoil triggered by Lehman's demise is likely to hurt US employment conditions and consumer sentiment, leading to a further slump in the world's largest economy.

"It is undeniable that the US slowdown and a stronger yen will have a significant impact on Japan's export industry," said Norihiro Fujito, a senior investment strategist at Mitsubishi UFJ Securities Co.

"Japan's direct subprime-linked losses may be small, but its economy will not sail smoothly considering the negative impact on net business profits," he said.

Market observers also said the dollar is likely to weaken further and could fall below the 100 yen line as pressure grows for a near-term US interest rate cut to stem a global credit meltdown.