Panic selling depresses Tokyo Stock Exchange

The prospect of a nuclear catastrophe in Japan led on Tuesday to panic selling on the Tokyo Stock Exchange, driving the benchmark index down 10.6 percent.

Investors had already been badly unnerved by the earthquake that stuck Japan on Friday, causing damage estimated by some analysts at up to 15 trillion yen, or $183.5 billion. On Tuesday, they stepped up their selling after an explosion at the most crippled of three reactors at the Fukushima Daiichi Nuclear Power Station damaged its crucial steel containment structure.

At one point the Nikkei 225 index dropped more than 14 percent on Tuesday but pared losses to close at 8,605.15 points, the lowest in nearly two years.

The broader Topix, or Tokyo Stock Price Index, which plunged as much as 14 percent, was 9.5 percent lower.

Declines in both Japanese and Asian stock markets accelerated after Kyodo news agency said quoted the Tokyo metropolitan government as saying that “minute levels” of radiation have been detected in the Japanese capital.

“People have gotten very nervous,” Tohru Sasaki, a foreign exchange strategist at JP Morgan Chase, said. “We don’t know if we’ll be able to make it to work tomorrow.”

He noted that officials had been saying that the radiation risk was low, but “when they say it’s a problem for our health, that will be too late.”

Adding to the anxiety for investors was the danger that southwesterly winds from the badly damaged Fukushima nuclear plant would bring radiation to Tokyo for the first time. The national weather agency forecast that the winds would turn easterly, blowing the danger out over the Pacific Ocean, but the government earlier Tuesday asked people living within 30 kilometers, or 19 miles, of the plant to stay inside, an indication of the growing danger.

Mr. Sasaki said that while the damage from the quake and nuclear accidents had been “very large,” in the long run, the stock market should reflect the prospect for corporate earnings.

“But right now there’s no arguing with panic,” he said.

Emil Wolter, head of Asian strategy at RBS in Singapore, said, “My feeling is that the markets may be overreacting and panicking a bit.”

Unlike on Monday, when stock market losses were largely confined to Japan, the nervousness spread across the Asia-Pacific region on Tuesday.

The Kospi in South Korea dropped 2.4 percent, the Taiex in Taiwan fell 3.4 percent and the Hang Seng in Hong Kong sagged 3.3 percent.

The key index in Australia was 2.1 percent lower, Singapore fell 2.5 percent, and the Sensex in India declined 1.2 percent. In mainland China, the Shanghai composite index dropped 1.9 percent.

European and U.S. markets also were expected to open lower.

“Today is a panic day,” said Beat Lenherr, chief global strategist at LGT Capital Management in Singapore. “The question is: Where is the bottom? My feeling is that we may reach the low either later today or tomorrow — but that clearly depends on what happens at the nuclear reactors.”

The nervousness was nearly palpable after Prime Minister Naoto Kan briefly addressed the nation on television at 11 a.m., pleading for calm as engineers struggled to bring the damaged reactors under control.

Mr. Kan said that radiation had spread from the crippled reactors and there was “a very high risk” of further leakages.

“I would like to ask the nation, although this incident is of great concern, I ask you to react very calmly,” Mr. Kan said.

The radiation fears hit a population that is already in shock from the scale of the disaster, and on edge from days of aftershocks.

Just getting to work has become a challenge for many people, as power conservation measures put in place since the quake Friday have led to chaos on one of the world’s most extensive metropolitan mass transit networks, as major rail operators slow or cancel services.

In a bid to quell the growing nervousness, the Japanese central bank continued pumping liquidity into the financial system on Tuesday, adding to record amounts already injected on Monday.

At the end of a policy meeting on Monday, the Bank of Japan had also announced that it would enlarge an existing program to purchase government and corporate bonds and other financial assets from 5 trillion yen to 10 trillion yen.

Analysts broadly welcomed the central bank’s efforts.

“They have done the right thing — in fact, it’s pretty much the only thing they can do right now,” said Mr. Lenherr of LGT. In the medium term, he added, the authorities “will have to discuss a new fiscal package, and fiscal consolidation will have to go out the window for the time being,” because of the cost of the earthquake.

Mr. Wolter of RBS said the authorities in Japan had already introduced substantial supportive measures, both for the disaster relief and the financial markets, and more stimulus efforts are likely to follow.

“They are dealing with a disaster on an unprecedented scale; the response to date has been pretty formidable,” he said.

The response also has helped prevent a more marked surge in the yen. The Japanese currency has come under upward pressure, rising in the wake of the quake on Friday as companies and insurance companies repatriated cash to help pay for the reconstruction costs. The Japanese currency was trading at 81.5 yen per U.S. dollar by midafternoon Tuesday, compared to about 83 yen before the quake hit on Friday.

Kyohei Morita, chief economist at Barclays Capital in Tokyo, said he had extrapolated from the experience of the 1995 Kobe earthquake, which cost about 2 percent of GDP, to estimate the current rebuilding cost at around 15 trillion yen, or 3 percent of GDP.

“We have to reallocate money from other areas, like the new childcare allowance,” he said. “But the government hasn’t been talking about that yet; maybe they’re too busy.”

Assuming politicians can agree on a stimulus budget, he said, industrial production might still remain tepid through the second quarter of 2011, but show a revival in the third quarter.

“But we have more unknowns than knowns,” Mr. Morita said, “in terms of human lives, in economic loss, destruction of tangible assets, not to mention how widely the radiation damage will spread in geographical terms.”
Source: New York Times