BBC News - Japan earthquake causes fall in yen and stocks

Asia stock markets and the yen have fallen 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.

Markets hit

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 ended the day down 1.6%. The Shanghai composite fell only 0.8%.

Insurance stocks were hit worldwide in anticipation of big payouts to cover the cost of the disaster.

In Frankfurt, Munich Re fell 4.8% at the open of trading, while Allianz fell 1.6%. Swiss Re and Hannover Re were also down by more than 4%.

Munich Re has already said it will have to pay out about $1m because of the Christchurch earthquake in New Zealand on 22 February.

Damage to economy

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.
Cars swept away by the Tsunami shown on BBC News 24


Parts of Japan were hit by a 10m-high tidal wave

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.

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US Dollar v Japanese Yen

Last Updated at 11 Mar 2011, 10:26 GMT

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"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."

Clean-up cost

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.

"At the moment they 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.
Japan earthquake coverage on BBC World


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

"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."