Japan Struggles in Quake, Tsunami Aftermath; Nikkei Plummets

Central bank buys assets; Moody’s says no immediate crisis

As Japan continued to deal with the massive damage inflicted by a record 9.1 magnitude earthquake and tsunami whose aftermath sparked explosions at nuclear reactors, the Nikkei plummeted 633.94 points, or 6.2%, to close at 9,620.49, losing some 23.5 trillion yen ($287 billion) in value on Monday. The Nikkei's drop was its biggest since October 2008, fueled by what was said to be its greatest trading volume in more than 60 years. 

Japan’s central bank held interest rates at 0-0.1% and doubled its asset buying, even as some economists called the response inadequate, but Moody’s Investors Service said there was no immediate sign of a financial crisis.

Reuters reported that financial measures were only part of the response to the disaster as markets and rescuers alike struggled to bring order out of the chaotic natural disaster. The Star Advertiser in Hawaii reported that the PacificTsunami Warning Center raised the estimate of the quake’s magnitude from 8.9 to 9.1, accounting for the impact of the quake throughout the Pacific, according to physicist Gerard Fryer. That makes it the fourth most powerful quake since recording began in the late 1800s. The U.S. Geological Survey still rates the quake at 8.9.

Significant damage was done to Japan’s energy infrastructure, with explosions at two nuclear power plants and the threat of the same at a third; rolling blackouts were said to affect 3 million customers, with manufacturing shutting down because of damage and the unreliability of power. Shares of TEPCO, Japan’s largest power company, went untraded with sell orders outnumbering buys 200 to 1.

Questions remained concerning the viability of power in the long term, as workers tried to contain radioactivity from reactors severely damaged by the quake. Reactors remained offline, most likely permanently, as sea water was used to cool nuclear materials to avoid meltdowns.

A number of companies have halted work, with shares plummeting in record trading volumes on everything from carmakers to high-tech parts makers. Ports also sustained severe damage. Homebuilder shares rose substantially on the prospect for rebuilding.

And oil fell approximately 2% while gold rose, recouping some of last week’s losses, as investors looked for safe havens. Premiums on gold bars in Tokyo were $1 above London spot prices, from zero in the week preceding the quake; spot gold in London hit $1,423.65 per ounce in morning trading.

Andrew Moorfield, head of oil and gas division at Lloyds banking group, said in a report, "Short-term oil prices will decline because Japan is one of the world's largest oil importers and the Japanese economy will be severely and negatively impacted." He added that prices would recover in the long run as Japan recovered and emerging market demand continued to rise. April Brent crude was down, losing as much as 2.4%, with U.S. crude down $2.20. Liquid natural gas prices in the U.S. rose as expectations of greater dependence upon it as an alternate fuel spurred markets.

Tom Byrne, Moody's senior vice president, said in a Reuters interview that while "[t]he economic consequences appear to be greater than we perhaps originally expected on Friday," there were no signs of an immediate fiscal crisis; "[w]e still see that the market will readily fund the government right now."

However, he added that the damage looked set to exceed that for the Kobe earthquake in 1995; that disaster cost between $100 billion and $150 billion. "If it's as bad as Kobe,” he said in the report, “then it's pretty serious and if it's worse than Kobe then we're in uncharted territory."

Hiromichi Shirakawa, chief economist for Japan at Credit Suisse, put the figure somewhat higher, saying in a note to clients that just for the region hit by the quake and tsunami, losses would most likely be around 14-15 trillion yen ($171-183 billion).

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