Tokyo exchange failure shows why Japan's own stock is falling

Nikkei -- Oct 05

The real winner from the Tokyo Stock Exchange outage last week? Bitcoin!

When Asia's biggest equity bourse suddenly has the same transactional opacity and questionable security as the famously shadowy asset class, investors almost have to figure, why not place a bet? Ethereum, Binance Coin, Zcash, TSE-listed shares -- what is the difference when trading can be halted so suspiciously?

Yes, some hyperbole here. But it is quite a feat to generate simultaneous trending in cyberspace with Monty Python ("It is just a glitch!"), Trading Places ("Turn those machines back on!), The Simpsons (D'oh!) and The Matrix ("Woah!").

Still, this bull market in unfortunate metaphors is well earned.

The glacial and murky way TSE officials explained how one of the world's top exchanges had failed the same day the Bank of Japan released major data was a terrible look for a Tokyo trying to restore its status as a global financial center. The best Yoshihide Suga's new government, one pledging a financial Big Bang, could muster was a perfunctory "it is regrettable."

Chief Cabinet Secretary Katsunobu Kato attends a press conference on Oct. 1: the best Suga's new government could muster was a perfunctory "it is regrettable." (Photo by Uichiro Kasai)

What is really regrettable is how Japan has squandered the past eight years of supposed reform under Shinzo Abe. Or, depending on your perspective, the past 15 years.

Investors could not help but channel 2006, when Tokyo exchange computers got overloaded, halting trading. That came just months after a four-and-a-half-hour shutdown in 2005 thanks to a botched system upgrade.

Onward and upward, was the zeitgeist. In January 2010, the exchange shifted to Fujitsu's Arrowhead system. That did not keep a 2012 computer snafu from stopping dealing in nearly 250 securities, or a system crash that knocked out derivatives trading later in the year.

The name of Fujitsu's matrix would prove ironic as Abe came to power promising to fire three policy arrows at Japan's chronic deflation and dysfunction. One of the few to hit the target was tightened corporate governance. That matters little, though, if the most prominent expression of Japan Inc.'s health -- stock indexes -- can still fail in spectacular fashion in the year 2020.

Nor does the "was-TSE-hacked" chatter in financial circles help. Context and timing are important parts of this tale. The context is that earlier this year New Zealand's exchange was halted by cyberattacks. The timing could not be worse with Japan mired in recession.

BOJ Governor Haruhiko Kuroda cannot be happy either. Because Abe's arrows went off course, the onus is now on the central bank to boost growth and confidence. Its primary avatar was stocks, with Kuroda setting the public mood via epic purchases of exchange-traded funds.