Stocks and yen fall on earthquake

The quake was also felt as far away as Tokyo

Asia stock markets and the yen have fallen sharply in response to a tsunami and earthquake in Japan measuring 8.9 on the Richter scale.

It struck only minutes before the 0645 GMT close of trading in Tokyo.

The dollar briefly gained about 0.5% against the yen to 83.275 yen, before snapping right back again.

The Nikkei index ended the day some 1.7% lower, but Nikkei futures fell 3% in after-hours trading in Singapore as the scale of damage became apparent.

The Tokyo market had already been suffering amid the turmoil in the Middle East, and closed at its lowest level in five weeks.

Across Asia other markets also fell.

Hong Kong’s Hang Seng dropped some 1.8% following the earthquake, and was down some 1.6% as of 0800 GMT.

David Cohen, a Singapore-based analyst at regional economic commentators Action Economics said although the yen had traditionally been “a safe haven for investors” during disasters in other parts of the world, they may now ditch the yen in favour of the US dollar.

US Dollar v Japanese YenLast Updated at 11 Mar 2011, 03:40 ET *Chart shows local time $1 buys change %82.7500–

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However, Arjuna Mahendaran, chief Asia strategist of HSBC Private Bank in Singapore, played down the risk of any long-term impact on the currency.

“Japan’s big insurance companies and pension funds have been bringing funds back into Japan,” he said. “And that has kept the currency strong. I think if the damage is too big, we could see them further liquidate their foreign assets and bring funds back to Japan.”

On the other hand, the quake is likely to hurt and already weak economy.

“In the short term, the damage could even knock off almost 1% of the country’s GDP,” noted Mr Cohen.

“Longer-term though, it will balance out, through the rebuilding exercise which will be positive for growth will all the construction taking place. It could turn positive in about 12 months.”

There will also be concerns about damage to productive capacity, Mr Cohen said, and industrial production may suffer as a consequence of the damage caused.

An oil refinery near Tokyo caught fire, causing a massive blaze.

Activity at the major port of Yokohama has been disrupted by the earthquake, suffering a loss of power at its terminal.

An oil refinery near Tokyo caught fire, causing a massive blaze

“At the moment there are trying to get power back but it’s unlikely to happen today,” said Boon Lee Lur of shipping company Neptune Orient Lines.

The city Sendai in the north of Japan, which was the worst hit by the disaster, saw fires break out and its port overrun by the tidal wave.

But the city is much smaller than Kobe – which was hit by Japan’s last big earthquake in 1995 – according to Richard Jerram of Australian bank Macquarie.

“Transportation linkage is also less important [there], so [you can] assume the scale of disruption will be much smaller.”

The cost of clearing up the damage done could run into the billions, according to Mr Mahendaran, and that is likely to add further to the Japanese government’s ballooning debts.

But rating agency Moody’s was more upbeat about Japan’s capacity to deal with the quake.

“In a big economy like Japan, the impact of a natural disaster can be absorbed economically by the government and private insurance, so there will be no impact on government’s finances and therefore Japan’s sovereign rating.”

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