It has been an interesting trading day thus far in Japan. Stocks have moved triple-digits up and down, including a 350 point surge from the day’s low, all to finish the morning session up a modest 30 points. During that time, the Nikkei 225 fell as low as 7,486, taking it to a 26-year low — forget about the post-bubble trough! Initial selling was obviously induced by futures trading, in addition to media reports about banks needing to raise capital.

Weighing particularly heavy is a Kyodo News report citing sources close to the matter, saying Mitsubishi UFJ (JP: 8306) (MTU: 6.10 0.00%) is planning to raise ¥1 trillion of capital ($10B) in preferred and common stock. (See MarketWatch) Shares of MUFJ were last down 10.7% to ¥610 in morning trading. Given MUFJ’s recent investments involving Morgan Stanley (MS: 18.10 0.00%) and UBOC (UB: 0.00 0.00%), this is understandable, but dilution is a no-no for existing shareholders. MUFJ issued a statement, acknowledging the media reports, but saying “there has been no decision made” and the standard line of: “if any decision requiring disclosure is made in the future, we will make an immediate announcement.” Separately, NHK reported rival mega banks Mitsui Sumitomo (JP: 8316) and Mizuho (JP: 8411) (MFG: 6.16 0.00%) may also raise capital. (See Bloomberg) Both were also last trading down over 10% to ¥242,000 and ¥391,000, respectively.

So much for the consensus view in the Western world that Japanese banks are “buys.” It is somewhat disturbing that MUFJ will likely be raising capital, but it is forgivable, I suppose, since they are making acquisitions that hopefully bring some growth (any growth really) and eventually boost the bottom-line. Meantime, pity the existing shareholders. The other two mega banks raising capital, now that is another story, which brings some doubt to MUFJ’s positioning. The need for the capital needs to be explained! Is it the case that it’s nice to have and be able to hoard to preserve ratios? Or is it the case that cross-shareholdings and other investments have been nailed so hard that the capital is truly, urgently needed? This could be huge. And how about the regional banks, the insurers, and IBs?