ECONOMY:THE YEN fell as much as 0.3 per cent against the dollar before recouping its losses amid risk aversion by Japanese investors and expectations that Japanese insurance companies will sell foreign assets to pay for claims.
The disaster also weighed on markets elsewhere, pushing shares in European insurance companies down. Large reinsurers – Swiss Re, Hannover Re and Munich Re – were all down more than 4.5 per cent.
World stocks measured by the MSCI dropped 0.4 per cent to their lowest level since the end of January.
The quake hit just before the Tokyo stock market closed, so prices didn’t fully factor in the scale of the disaster. Nikkei stock futures plunged nearly 5 per cent at one point. Bond futures surged on worries the widespread damage would put further pressure on the economy, while the most active gold contract on the Tokyo Commodity Exchange, February 2012 , inched higher. “We still don’t know the full scale of the damage, but considering what happened after the earthquake in Kobe, this will certainly lead the government to compile an emergency budget. We can expect consumption to fall. This could temporarily pull down GDP,” Mr Yamamoto said.
The Reserve Bank of New Zealand slashed interest rates on Thursday to support the New Zealand economy following a 6.3 magnitude earthquake that wrecked Christchurch’s central business district. But the Bank of Japan’s options are more limited because its policy rate is already a lowly 0.1 per cent following cuts during the global financial crisis.
The government’s fiscal hands are also tied as it wrestles with the biggest public debt among industrialised countries at two times the $5 trillion economy. Still, they may have little choice but to take action.
“The extent of the damage is hard to tell but it seems devastating for the northern Japan economy. The government must act quickly to announce support packages and the central bank should pump more money into the economy,” said Tsutomu Yamada, a market analysts at Kabu.com Securities. The 1995 quake that devastated Kobe caused $100 billion in damage, though industrial production and financial markets bounced back fairly quickly.
Hokuriku Electric said all of three reactors at its Onagawa nuclear plant shut down automatically after the quake, but no radioactive leaks were reported.
However, Japan started to evacuate thousands of residents living near Tokyo Electric Power’s Fukushima Daiichi nuclear plant after fears of a radiation leak. Official said there was no sign of leakage.
Electric Power Development (J-Power) also halted operations of its Isogo thermal power plant in Yokohama, Jiji reported.
Mitsubishi Chemical shut two naphtha processing plants with around 11 per cent of Japan’s ethylene-producing capacity. A fire was reported at Cosmo Oil’s Chiba refinery, east of Tokyo. JX Nippon Oil Energy Corp, Japan’s top refiner, halted operations at three refineries, while Tonengeneral shut the main units at its Kawasaki refinery. Mitsui Mining and Mitsubishi Material halted operations at zinc and copper smelters in the region. – (Reuters)