Japan’s central bank pledged to ensure financial stability after the nation’s strongest earthquake on record forced Toyota Motor Corp to shut some plants, shut down oil refineries and sparked a plunge in stocks.
Yesterday’s magnitude 8.9 earthquake struck off the coast of Sendai, a city of 1 million in the northeast, unleashed a tsunami as high as 10 meters (33 feet) that engulfed towns along the coast. More than 500 people have been reported killed. The Tohoku region, which includes Sendai, accounts for about 8 percent of the country’s gross domestic product, according to the Cabinet Office figures.
The disaster may curb Japan’s recovery from an economic slump in the fourth quarter as Prime Minister Naoto Kan struggles to convince investors about his ability to tackle the world’s largest public-debt burden. While the Finance Ministry said it’s too soon to gauge the quake’s economic impact, the Nikkei 225 Stock Average dropped 1.7 percent yesterday.
“The nagging question in the background here, given that public finances are in such a weak condition already, is: Is this going to push Japan over the edge,” said Brendan Brown, chief economist at Mitsubishi UFJ Securities International in London. “If we’re talking about less than 5 percent of GDP, then it probably wouldn’t be the make or break factor.”
Oil for April delivery tumbled $1.54 to $101.16 a barrel on the New York Mercantile Exchange, the lowest settlement since March 1.
Japan crude oil
“This is in response to the tsunami in Japan and the lack of the Day of Rage in Saudi Arabia,” said Hamza Khan, an analyst with the Schork Group Inc., a consulting company in Villanova, Pennsylvania. “If the Japanese refineries are down, then we’re going to see lower demand for crude oil.”
The temblor set ablaze a Cosmo Oil Co refinery near Tokyo and closed at least three others, temporarily curbing demand for crude in Asia’s second-largest oil-consuming nation.
Prime Minister Naoto Kan, returning from an inspection of the devastated area on Saturday, said he would mobilize 50,000 Self Defense Force personnel to aid the relief effort. “It’s very important to make as much progress as possible in the rescue effort in this first day.”
The Bank of Japan, which has already cut its benchmark rate to zero in an effort to end deflation, set up an emergency task force and said it will do everything to provide liquidity. The central bank said its settlement system was working and that it was able to settle all accounts without disruption.
Big earthquake
Policy makers will hold a policy board meeting on March 14 and announce their decision on the same day instead of March 15.
“The BOJ considers it’s better to make a policy decision earlier, following the big earthquake,” said Seiichi Tsurumi, a spokesman at the Tokyo-based central bank. Governor Masaaki Shirakawa will also hold a press conference.
The earthquake struck less than half an hour before Japan’s stock market closed. The yen initially dropped before paring its losses and later advanced at least 1 percent against all 16 of its most actively traded peers. The Stoxx Europe 600 Index slid 0.9 percent in Frankfurt and the Standard & Poor’s 500 Index rose 0.7 percent in New York.
Munich Re and Swiss Reinsurance Co., the world’s two biggest reinsurers, lost 4.3 percent and 3.5 percent, respectively. Aflac Inc., the insurer that got 76 percent of 2010 revenue from Japan, shed 0.3 percent.
“It’s difficult to estimate the economic impact right now,” Takuji Okubo, an economist at Societe Generale SA, told Erik Schatzker on Bloomberg Television’s “InsideTrack” from Tokyo yesterday. “I’m sure this earthquake will reduce Japanese manufacturing output.”
The economy may nevertheless weather the shock, which evoked memories of the Great Hanshin Earthquake that hit the port city of Kobe in January 1995, said Richard Jerram, Singapore-based head of Asian economics at Macquarie Securities Ltd.
