The Bank of Japan on Monday pumped a record $184 billion into money markets and took other measures to protect a teetering economy Monday, as the Tokyo stock market nosedived following a devastating earthquake and tsunami.
The benchmark Nikkei 225 stock average slid 6.2 per cent in its first day of trading since the 8.9-magnitude quake centered on northeastern Japan struck on Friday last, triggering enormous waves that swamped towns and killed thousands.
Escalating concerns about the financial and economic fallout “plus the risk of meltdown at damaged nuclear power reactors” triggered a plunge that hit all sectors of the stock market. The broader Topix index lost 7.5 per cent.
“Japan will be poorer, for this disaster,” said Peter Morici, a business professor at the University of Maryland. “Rebuilding will run down Japan's financial wealth.”
The Bank of Japan moved quickly to try to keep financial markets calm. By flooding the banking system with cash, it hopes banks will continue lending money and meet the likely surge in demand for post-earthquake funds.
Later in the day, the central bank's nine-member policy board gathered for a shortened meeting and voted unanimously to ease monetary policy. It will expand the size of an existing programme to buy assets “such as government and corporate bonds” by 5 trillion yen to 40 trillion yen ($486.4 billion). It also decided to keep its key interest rate at virtually zero.
Credit Suisse economist Hiromichi Shirakawa and analysts at Barclays Capital estimated the damage at up to 15 trillion yen ($183 billion) “about 3 per cent of gross domestic product''. Other experts warned the economy will shrink for two straight quarters.
That represents a painful blow for Japan which lost its place as the world's No. 2 economy to China last year. The Japanese economy has been ailing for two decades, barely managing to eke out weak growth between slowdowns. It is saddled with a massive public debt that, at 200 percent of GDP, is the biggest among industrialised nations.
“People might see an already weakened Japan, overshadowed by a growing China, getting dealt the finishing blow from this quake,” said Koetsu Aizawa, economics professor at Saitama University, north of Tokyo.
Mr. Morici said the nuclear crisis combined with the twin hit from the quake and tsunami could make Japan more vulnerable than it was in the past.
“The double whammy has the potential to keep the Japanese economy shut down longer and globalisation offers Japan's export customers alternatives they might not have enjoyed a decade or two ago,” he said. “Hyundai and Ford now are good substitutes for Toyota's cars, and even more so, Caterpillar tractors made in China can replace Komatsu's land movers.”
Among the hardest hit on the stock exchange, shares of The Tokyo Electric Power Co. plunged more than 23 per cent as it faced power shortages and a second hydrogen explosion at a nuclear reactor on Monday, sending a massive column of smoke into the air and wounding six workers.
Toyota Motor Corp., the world's biggest automaker, tumbled 7.9 per cent after saying it would suspend manufacturing at its domestic plants through Wednesday “a production loss of 40,000 cars.''
Other manufacturers forced to halt production, such as Sony Corp. and Honda Motor Co., also slumped.