Japan’s central bank injected 7 trillion yen ($85.7 billion) into the country’s economy this morning as traders took fright of the damage inflicted by the earthquake and shares plunged on the Tokyo stock market.
The Nikkei stock index opened 2.05 per cent lower than Friday’s closing price and was down 5 per cent an hour later. Shares in Japan’s top car manufacturers fell 10 per cent.
“We cannot possibly ignore the impact that this quake will have in terms of geographical span and scale — as well as the psychological impact,” Shun Maruyama, a strategist for Credit Suisse, said.
The massive Bank of Japan injection is intended to keep short-term borrowing costs from spiking. The Government in Tokyo is likely to authorise extra spending as it tackles the results of the disaster.
Stock markets around the world were expected to take a pounding today amid fears that Asia’s growth will be reduced by the catastrophe in Japan.
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Global shares and commodities, including oil were expected to come under further selling pressure as the scale of the disaster turned out to be much greater than assumed on Friday. Worries over nuclear power stations in the world’s third biggest economy were likely to spook traders further.
Japanese regulators threatened to crack down on market manipulation after speculation that some hedge funds would exploit the uncertainty to take possibly destabilising “down bets” on the price of some assets.
Japan was already suffering from an economic contraction at the end of last year and a vast government debt burden, and the earthquake’s devastation will hammer the economy, analysts said.
Other countries in the region that rely heavily on Japanese industrial and consumer demand, including Malaysia, Singapore and Thailand, are also likely to be hurt after Japanese companies led by Toyota, Honda, Sony and Nissan were forced to close plants.
However, analysts said the economic impact of disasters including earthquakes tended to be short-lived. The Kobe earthquake in Japan in 1995 did temporary damage to the economy, but activity was subsequently quickly lifted by reconstruction.
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George Magnus, economic adviser to the investment bank UBS, said: “There will be an immediate hit to Japanese industrial production, retail sales and construction, but as with other earthquakes, once the opportunity arrives for rebuilding, the hit proves temporary.
“You get a big drag on growth and output to begin with but, as the rebuilding kicks in, it is made good.”
He added: “We should be braced for weakness in Japanese stock prices, but one would expect a much bigger impact on Asian markets than on those in the West.”
The price of crude oil and other commodities could fall further as traders retreat to more conservative investments such as government bonds. The crude oil price fell 3 per cent on Friday with traders deciding demand for crude would be reduced as factories lay idle and ports remained closed.
“Short-term oil prices will decline because Japan is one of the world’s largest oil importers,” said Andrew Moorfield, head of the oil and gas division at Lloyd’s Banking Group.