Business Notes FINANCIAL MARKETS

When Japan's probusiness Liberal Democratic Party confounded predictions of a tight race and won a resounding victory in the national election early last week, many investors hoped Tokyo's financial markets would celebrate. But the champagne corks never popped. Instead investors watched in distress as the Tokyo stock market suffered one of its biggest declines ever. Falling in four of the five daily sessions last week, the 225-issue Nikkei index plummeted more than 2,500 points, or nearly 7%. Approximately half of the drop occurred on Wednesday alone. The Nikkei closed at 35,890.97, the lowest level since last October.

The steep fall prompted many investors to suspect that Japan's high-flying stock market may finally be headed for a major correction. One factor depressing the market is a widespread belief that the Bank of Japan will boost interest rates to fight inflation, a move that would be likely to slow the country's economic growth. The trade talks between the U.S. and Japan, which resumed last week, were also a source of gloom. Ironically, yet another notable cause of last week's volatility is an American export, program trading, which a growing number of firms are now practicing on the Tokyo market.