Aside from the ignominy of recent failures, there is a cruel irony in the series of recent breakdowns, glitches and suspensions at the Tokyo Stock Exchange (TSE). Japan has for years waited for the turnaround and the recovery of its stock market, but when it finally arrives, the stock market’s infrastructure has not been able to cope. In the home of some of the world’s premier technology brands, the second largest stock exchange has been failed by its technology.
Capacity exceeded
The renewed strength of the Nikkei share index, which rose by 40% in 2005 – its best performance in almost 20 years – has been trumpeted as a sign that Japan’s economy has finally turned the corner. The exchange has vigorously wooed new investors, many of them foreign and many of them retail, but when fraud allegations at internet firm Livedoor caused a stampede to sell shares, the exchange was forced to suspend trading because the system exceeded its capacity.
This was simply the latest in a catalogue of disasters that have forced the resignations of the exchange’s president, managing director and head of IT. In November last year, a software upgrade crashed the trading platform for almost a day, and in December an incorrect trade by Mizuho Securities could not be cancelled because the TSE system was too busy to process the instruction, costing the brokerage ¥40bn (£190m).
Some fear that the exchange’s troubles symbolise a broader set of problems in the Japanese economy. The latest hiccup – caused by the sell-off of Livedoor shares – triggered sharp falls across the whole market, even while analysts suggested that the fraud allegations would have no impact on unaffiliated companies.
Others argue that because IT firms have been perceived as an important element in Japan’s recovery, Livedoor’s downfall could damage investor sentiment and undermine the economic revival.
A lack of substance?
There have, anyway, been accusations from some quarters that Japan’s fast-rising valuations may lack substance, and that, while it is clear that crucial restructuring and changes have been taking place, there has still not been enough change in the way that companies view and manage risk and return.
If the sceptics are right, Japan’s recovery may be more fragile than it seems.
