Markets in Europe and the US fell overnight after a 7.1 magnitude aftershock rattled the same area of Japan that was hit a month ago today by the huge earthquake and tsunami.
A tsunami warning was issued for two hours and NHK, the state owned broadcaster, said fires, some injuries and damage was reported, but more would be known this morning.
The quake was the biggest aftershock so far recorded in the wake of the 9 magnitude one on March 11.
No damage was reported at the Fukushima nuclear power plant which continues to cause trouble.
The Bank of Japan yesterday warned that the country is facing tough times from the March 11 quake, tsunami and the nuclear crisis at the Fukushima power station.
The warning came in the post meeting statement in Tokyo where the bank maintained its current interest rate at just 0.1%.
At the same time, the yen continues to fall against the US dollar, instead of rising, as many in the markets had been punting on.
When the March 11 quake, tsunami and then the Fukushima nuclear crisis happened, the yen rose sharply as investors speculated that Japanese companies would need to sell tens of billions of dollars of foreign assets, buy yen and return the cash to home.
That saw a mad scramble to buy yen as speculators elbowed others in the huge forex market out of positions to try and make a killing.
That in turn saw the yen tumble to an all time high of just over 76 yen to the US dollar in the following week, before coordinated intervention by the Group of Seven major economies halted the surge in the value of the yen.
As a result the currency dropped to around 81 yen to the greenback, but instead of retracing that high, as many investors reckoned it would, it has gone on falling to where it hit successive six month highs against the US currency on Wednesday and Thursday of more than 85 yen to the $US.
But the currency has fallen because the same speculators are now convinced that the interest rate margin between Japan and the rest of the world will rise.
That proved to be the case on Tuesday when China lifted its key one year rate to 6.31%, the European Central Bank lifted its key rate to 1.25 % from 1% last night and there are signs that US monetary policy could tighten later this year (or so these market forecasters assert).
The basis for this changed view was an expectation the Bank of Japan wouldn’t change rates at its two-day meeting which ended yesterday.
But that was always going to be the case, so the markets are searching for a reason to explain something they didn’t see happening.
It didn’t and its key rate remains at 0.1% and it also introduced a one trillion yen scheme to help financial institutions in the quake and tsunami affected areas.
And it also warned that the country’s economy was faced with strong downward pressure from the quake and tsunami.
“Japan’s economy is under strong downward pressure, mainly on production, due to the earthquake,” the bank said in a statement.
“There is high uncertainty about the possible effects of the earthquake disaster on Japan’s economy.
The bank said the economy’s expected to return to a moderate recovery path — as supply-side constraints are mitigated and production regains traction — backed by an increase in exports reflecting the improvement in overseas economic conditions and by a rise in demand for restoring capital stock.
The bank said that while financial markets have been “stable as a whole” following the disaster, “weakness has been observed in the financial positions of some firms, mainly small ones, since the earthquake”.
Analysts say the central bank, which meets again on April 28, could take more action at this meeting as it will have more hard data about the disasters’ impact on the wider economy.
There should also be more clarity by then about how the government plans to finance reconstruction, such as a plan to cut the foreign aid budget by billions of dollars.
It also announced a 1 trillion yen (about 11.7 billion US dollars) loan program under which low-interest loans will be extended to financial institutions in the parts of the country hit hardest by the March 11 earthquake.
Meanwhile the government has indicated it is looking to cut the aid budget to developing countries as it struggles to rebuild after the devastating March 11 earthquake and tsunami.
The government and ruling Democratic Party plan a supplementary reconstruction budget for fiscal 2011, expected to total over 3 trillion yen, or $US35 billion dollars.
The first budget plan is expected to be submitted to the Diet before the end of the month.
More than 570 billion yen — or roughly $US6.7 billion dollars — in foreign government aid is earmarked for fiscal 2011.
Cuts of around $US1.1 billion have been reported in Tokyo.
NHK, the TV network said yesterday that Japan’s non-life insurers say over 300,000 claims for quake insurance payouts have been filed by disaster victims.
As of Tuesday, the number of claims amounted to around 320,000 which is nearly five times the number of claims that resulted in payment after the 1995 Kobe quake.
And company profit downgrades continue to flow.
Leading food maker Kagome said this week it now expects its annual net profit to drop 47% for the year to March 31, household equipment maker TOTO predicts its net profit will drop by 25% and medical equipment maker TERUMO forecasts a fall of 11%.
Honda Motor says it will halve production in Britain amid a shortage of parts from Japan following the March 11 earthquake and tsunami.
The leading Japanese automobile maker made the announcement on Wednesday. The decision will affect its factory in the British city of Swindon from next Monday until at least the end o
