A shares sell-off on the American stock markets threatened to gain ground this afternoon as investor worries about the financial impact of Japan’s devastating earthquake moved on to Wall Street.
After markets in Asia had tumbled and investors in Europe fretted, the Dow Jones opened more than 50 points lower at below 11,997, before losing 114 points to 11,930.68.
The early Wall Street response came after Asian markets were driven down sharply in reaction to Japan’s quake and worries about nuclear explosions.
The benchmark Nikkei 225 slid almost 6.2 per cent to 9,620.49, its lowest level since October 2008 at the height of the banking crisis, despite an unprecedented Y15 trillion (£113.6 billion) liquidity injection by the Bank of Japan — the central lender’s biggest single intervention.
It pushed short-term government bond yields lower in its immediate aftermath, but long-term bond yields rose on worries that more debt issuance would be needed to cover reconstruction costs.
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In spite of the Bank of Japan’s efforts, the sell orders on the Japanese stock market came thick and fast. In London, the FTSE 100 index fell 59 points to 5,769.58.
Before the earthquake, Japan’s economy was predicted to grow just 0.3 per cent in the first quarter, after a surprise contraction in the fourth quarter of last year. However, there is concern that the country’s output will shrink after a number of the country’s leading companies suspended operations, including Toyota which announced that all production at its 12 factories in Japan would be suspended for the next three days at least following Friday’s quake.
The carmaker said that the halt would reduce output by 40,000 vehicles. Toyota made 234,045 vehicles in January in Japan, where it produces 38 per cent of its cars. Sony suspended production at eight plants in the affected region.
Meanwhile, the price of oil dipped as traders predicted that the country’s woes would stifle demand.
New York’s main contract, light sweet crude for delivery in April, lost $1.33 to $99.83 (£62) per barrel, while Brent North Sea crude for April delivery lost $1.81 to $112.03.
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The yen briefly touched Y80.60 against the dollar — a four-month high — after the bank’s emergency liquidity injection but later retreated to Y82.19 amid wider worries about the crisis.
Naoto Kan, Japan’s Prime Minister, has warned that the country faces its biggest battle to rebuild since 1945 and the end of the Second World War.
After Friday’s earthquake was followed in a matter of hours by a succession of tsunamis, there was an explosion at the Fukushima nuclear installation over the weekend and today the authorities were battling to stem radiation leaks in at least two other reactors in the north of the country.
The Japanese central bank also kept its key interest rate at close to zero today, with limited legroom to use monetary policy to try to kickstart the economy.
“The damage of the earthquake has been geographically widespread and thus, for the time being, production is likely to decline,” the central bank said.
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“There is also concern that sentiment of firms and households might deteriorate.”
The price of gold, a traditional safe haven investment, rose 0.5 per cent to $1,425.19.