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Devastating Japanese Quake Rattles Markets Across Globe

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In the wake of a powerful 8.9 magnitude earthquake and tsunami that hit Japan on Friday just prior to the close of stock trading, stocks fell along with oil prices, and bond futures rose.

The Nikkei was down 1.7% at an intraday and five-week low, and the Hang Seng in Hong Kong dropped 1.8%. In Singapore, Nikkei futures plunged 3%. Japanese bond futures, on the other hand, rose more than a full point even as cash bond trading was suspended. Oil tumbled as well, as Japanese industry shuttered in the aftermath of the quake. Gold had been falling after it had hit record territory on Monday, but on news of the quake regained lost ground, with spot gold bid at $1,416.90 in early European trading.

Reuters reported that the yen also fell against the dollar. The quake is the largest to hit Japan since recording began 140 years ago, and it was followed by a tsunami that had already done tremendous damage in Japan but then continued on its way to other land masses in the Pacific Basin.

While it was not expected that market losses would be long term—Mitsuhsige Akino, a fund manager at Ichiyoshi Investment Management, said in the report after the market closed on Friday that Japanese stocks "will probably fall on Monday, especially of those companies that have factories in the affected areas, but on the whole the sell-off will likely be short-lived"—damage was extensive and bonds would be affected. Yasuo Yamamoto, senior economist at Mizuho Research Institute in Tokyo, was quoted saying, "This will certainly lead the government to compile an emergency budget. The government would have to sell more bonds, but this is an emergency, so this can't be avoided."

The influence of the quake on the price of oil was also likely to be only temporary, given that the unrest in the Middle East/North Africa (MENA) region continued. Although Japan is the world's third largest consumer of oil, on Friday it was reported that Libya’s output had fallen to only 200,000-300,000 barrels per day with the halt of production at the offshore Al Jurf oil field.