Japan Crisis: Panic Selling Depresses Stock Markets in the Country

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.

The Tokyo Stock Exchange or TSE, located in Tokyo, Japan, is the second largest stock exchange in the world by aggregate market capitalization of its listed companies, second only to the New York Stock Exchange. Photo: TheBlogIsMine/Flickr

A massive selloff on the Tokyo Stock Exchange wiped out some 15 trillion yen ($183 billion) from the market’s value on Monday with investors dumping stocks as the country recoiled from a devastating earthquake and struggled to avert nuclear disaster, the New York Times Reports.

On Tuesday, the investors 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, ended 9.5 percent lower.

Declines in both Japanese and Asian stock markets accelerated after Kyodo news agency 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 of the plant to stay inside, an indication of the growing danger.

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 Hang Seng in Hong Kong sagged 3.3 percent.

The key index in Singapore was 2.5 percent 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.

“There has been a fire at the No. 4 reactor [Fukushima Nuclear Plant] and radiation levels in the surrounding area have heightened significantly,” he said.

“The possibility of further radioactive leakage is heightening. We are making every effort to prevent the leak from spreading. I know that people are very worried but I would like to ask you to act calmly.”

12 million people live in the Japanese capital and there were fears that the effects of the explosions and fire at three nuclear reactors could spread there. In a sign of mounting fears about the escalating nuclear disaster Air China, China’s national airline, cancelled its flights to Tokyo.

Sairi Koga, an official of the Tokyo Metropolitan Government, said: “We monitored a higher than normal amount of radiation in the morning in Tokyo. But we don’t consider it to be at a level where the human body is affected.”

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.

“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.

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 child care allowance,” he said. “But the government hasn’t been talking about that yet; maybe they’re too busy.”

Japan’s economy is one third the size of America’s and has been relegated to third spot behind China. Far from growing at record pace, it managed a woeful average of 1 percent a year in the 1990s and no better in the 2000s.

So, began Japan’s “lost decade”, which swiftly became two. And there has been precious little evidence that a third decade would be averted. Tell us your thoughts in the comments below. [via Reuters and NY Times]

Share this article

We welcome comments that advance the story directly or with relevant tangential information. We try to block comments that use offensive language, all capital letters or appear to be spam, and we review comments frequently to ensure they meet our standards. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Coinspeaker Ltd.