FINANCIAL MARKETS: Beware the Triple Whammy

During the 1980s, the Japanese spoke of the "Triple Merits" that were driving the Tokyo stock market's extraordinary rise: a strong yen, low interest rates and falling oil prices. Now that the Tokyo market is on a rocky slide, investors have labeled the culprits the Triple Demerits: a weakening yen, growing inflation and rising interest rates. The triple whammy has sent the Nikkei index down nearly 15% so far this year. In one session last week the index dived 1,569 points, or 4.5%, the biggest one-day loss since the 1987 crash. The index lurched up and down for the rest of the week, closing down 833 points, at 34,057.56.

The falloff in stock prices suggests that the Tokyo market is newly vulnerable to financial forces beyond its borders. Most notably, Japan is feeling the effects of higher interest rates in West Germany, where the yield of government bonds has climbed briskly, largely due to concerns over the cost of monetary union with East Germany.

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CAPTION: NIKKEI INDEX

Where did Tokyo's stability go?