The balance of shares sold short is threatening to outrun that of margin buying, indicating investor confidence has hit an all-time low.
The outstanding balance of shares bought on credit stood at 1.145 trillion yen at the end of last week, down 57.4 billion yen from a week before, while that of short-selling rose 110.55 billion yen to 1.101 trillion yen, according to industry figures.
The long-short ratio stood at 1.04, the lowest on record.
The previous low of 1.18 was set two weeks earlier.
A broad array of shares remained under severe selling pressure, setting off demands from stockbrokers for bigger cash deposits from individual investors who had borrowed from them to buy stocks.
Faced with the margin calls, many investors liquidated their positions to satisfy the lenders.
Short sellers, including hedge funds, on the other hand, had been profiting from the market's declines.
The demoralized performance of the market reflects pessimism about corporate profits and prospects for equity markets around the globe, brokerage officials said.
They also pointed to investor disappointment over slow progress in structural reforms pledged by Prime Minister Junichiro Koizumi.
Among shares selected for short-selling were steel and banking issues.
With the selling pressure continuing unabated, Sumitomo Metal Industries traded below its face value of 50 yen late last week, a level unseen in 38 years.
Asahi Bank and Sumitomo Mitsui Banking Corp. also took a beating.
The long-short ratio fell below 0.5 for many high-tech firms, including NEC, Kyocera and Advantest, as well as optical instrument makers Canon and Ricoh.