Mizuho Securities and Shinko Securities, the Japanese mid-size brokers, confirmed today that they are postponing their merger for the second time in five months after blaming the US credit crunch.

The brokers, both owned by Mizuho Financial, Japan’s second-largest bank, will now merge by May 2009, a year after the two companies planned to combine.

Mizuho and Shinko originally said they would merge by January this year, but revealed in November that the deal would be delayed until May.

In both instances, the brokers have blamed the American credit crunch, most recently stating that economic conditions were hampering the due diligence process.

Mizuho and Shinko announced the delay as Tokyo markets lurched through a second day of extreme volatility after the massive bond sell-off last Friday caused the Tokyo stock exchange to suspend trading.

With volumes light and the annual string of Golden Week national holidays looming, traders described the environment in Tokyo as “impossibly treacherous”:

Market participants told The Times that last Friday’s Japanese government bond (JGB) collapse had caught a number of extremely heavily leveraged hedge funds and global macro investors in the United States and Britain off guard and that the huge sell-off had created some hefty casualties.

Trading-room chatter suggested that GLG may have been among a number of asset managers now nursing gaping wounds where previously they had held large JGB positions.

Other theories included speculation that big domestic players, such as Nomura and Daiwa, may also have taken heavy beatings in the surprise rout.

“You can see from today’s trading that the big market makers in JGBs have all been carried out on stretchers and it’s left everybody else clutching at straws,” said one broker at Tokyo Mitsubishi UFJ.

"We are seeing a very ugly market with some very worrying disconnects between what should be happening and what actually is happening.”

Stocks staged strong early moves north as short positions were squeezed out of large blue-chip shares today.

Shares in banks, insurers and securities houses rocketed on expectations that Japan’s return to inflation after a 20-year hiatus would eventually prompt an interest rate increase by the central bank.

But no move lasted long. After briefly hitting the 14,000 point mark for the first time since January, the Nikkei index tumbled back into deficit before staging a strong recovery in the afternoon.

Across dealing floors, traders reported rumours of a significant buying spree by a large sovereign wealth fund: several such funds, based from Dubai to Beijing, have hinted that they would soon turn buyers of battered Japanese blue chips.

Nomura traders also reported the tentative return of “serious” US and European investment money, which largely fled the Japanese stock market in early January and has been biding its time for a return.

The impending holiday season has also caused unexpected moves on currency markets.

The dollar slid against the yen after Japanese exporters sold the greenback hard.

Japanese importers — especially those most exposed to soaring, dollar-denominated oil prices — are meanwhile hoarding their dollars as a hedge against wild forex movements during the Golden Week market shutdown.

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