Japanese Stock Market in Free Fall on Nuclear Fears, Nikkei Down Nearly 13%

The stock market decline in Japan thus far today is second worst to the 1987 crash. As a mere mortal with delayed Bloomberg readings, Topix is now down “only” 12.64 versus a recent 13.18% and the Nikkei is off 12.74%, having recovered a smidge from down 14.1%. Good thing I didn’t listen to some recent stock market recommendations that the Japanese stock market would be up 20% in the first six months of this year.

The yen has firmed only modestly, to 81.55, due to Bank of Japan emergency liquidity operations only partially offsetting a rally. Note the BoJ’s operations are being criticized for being inadequate (ahem, do you think even a central bank can stand in front of a freight train of a major reset in economic fundamentals, unless it chooses to intervene in the stock market directly? Given the current and potential economic damage, the Japanese bond and money markets don’t sound too terrible with call money rates in a much wider trading range than normal. 008% to 0.13% versus the BofJ’s target of 0.1%, so the BoJ appears to be addressing what it considers to be its main priority). From Bloomberg:

Shirakawa yesterday committed at a news conference in Tokyo to keep pumping cash as needed after unleashing a record 15 trillion yen ($183 billion) in one-day operations. The central bank added 5 trillion yen this morning. The bank yesterday also decided to double its asset-purchase program to 10 trillion yen, an increase that’s about one-tenth the size of the U.S. Federal Reserve’s Treasuries-buying effort.

“The Bank of Japan is missing the chance of doing something more aggressive,” said Masaaki Kanno, chief Japan economist at JPMorgan Chase & Co. in Tokyo, who used to work at the central bank, said yesterday. “What the BOJ should do now is to anchor investors’ sentiment” with accelerated purchases in its program, he said.

The Topix slid 12 percent at 12:42 p.m. local time, following a 7.5 percent drop yesterday. Japan’s currency traded at 81.52 per dollar, keeping its advance since the March 11 catastrophe to 1.8 percent, amid speculation officials may intervene to sell yen should it soar. Bonds rose, sending yields down for a third day.

US Treasuries have also shot up in Asian trading, with the ten year bond rising nearly two points. Other Asian stock markets, which had shrugged off the bad news in Japan yesterday, are off markedly, with the Han Seng down 3.8%, the Singapore Straits Times down 2.9%, and the ASX down 2.8%. S&P 500 futures are off 31.90 points. Gold is off nearly 1% at 1410 and Brent is at 111.18

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31 comments

  1. psychohistorian

    As the world starts processing the impact of this evolving catastrophe, IMO, Japan’s stock market will tank completely and bring the rest of the world to a halt/pause as well.

    I look for a week or so of world market closures as the impact of multiple runaway nukes explodes into world consciousness.

    We can only hope that some good will come from all of this in the end.

    1. aet

      Perhaps it would have an even greater impact if anybody actually gets killed by this accident.

      The tsunami and earthquake are yet the real killers .

      But increases in cancer incidence in the future is nothing to downplay. Nor to exaggerate, for that matter..

    2. MyLessThanPrimeBeef

      We humans are reminded of the awesome power of nature.

      We have been humbled.

      We know a healthy dose of fear is good. It curtails arrogance. Do not fear of fear. Fear a little. Conquer your phobophobia. Be humble before Nature.

      Let’s hope this deflates our ‘fear no fear bubble’…our ‘hubris bubble.’

  2. aet

    But there is a lot more for people to think about, too: the Saudi Army going into Bahrain; the continuing battles in Libya, the ongoing coups/revolutions in Egypt and Tunisia; Israel and the Palestinians trading words; union-busting in the US.

    Seems like the news cycle suddenly got very bud sy indeed.

    1. Bob Fanning

      Caesar:
      Who is it in the press that calls on me?
      I hear a tongue shriller than all the music
      Cry “Caesar!” Speak, Caesar is turn’d to hear.

      Soothsayer:
      Beware the ides of March.

      Caesar:
      What man is that?

      Brutus:
      A soothsayer bids you beware the ides of March.

      Julius Caesar Act 1, scene 2, 15–19

    1. mannfm11

      It is deeper than that. Those power plants are probably the difference between having adequate electricity and having insufficient power to operate as modern economy. It will be 5 years before they can get anything close to normalcy back. By then, much industry might be moved to another part of the world or for that matter be destroyed. Events like this add a stimulus when a country isn’t broke. When we are in the times of collapsing bubbles and excessive debts, an economy can be pushed totally over the edge. This more like totaling your car than needing a jump for your battery.

    2. dave

      Can you imagine what will happen if there is a meltdown and the radiation goes downwind to Tokyo? Are you prepared for Nikkei down 50%+. They are just pricing in that risk.

      Here’s something to put this all in perspective. The earthquake was an 8.9 on the ricter scale, the fifth most powerful earthquake in recorded history. The nuclear plants were designed to handle an 8.2. Now you might think 8.9 and 8.2 are pretty close. Except each point on the ricter scale is a magnitude of 10! So a 9 is ten time more powerful then an 8. And an 8.9 is about 7 times more powerful then an 8.2. The quake was 7 times more powerful then what is was designed for. We talk a lot about one in a hundred year events. This time its not an exaggeration.

      1. Tertium Squid

        There have been an awful lot of these once-in-a-hundred-year events lately.

        I don’t intend to downplay the severity of what happened. It just always amazes me – if we really were so actuarial and precise in valuations, this sort of risk would already be priced in.

        Time and fortune make fools of us all.

        1. dave

          Except most of your once in a hundred year events are financial and political events, which nobody has any idea about. Natural disasters are science, they are a little bit more predictable.

          1. Tertium Squid

            Well, if they are natural science and are more predictable, then that would support my assertion that they should be expected and priced in.

            …and I can’t help but point out that our last once-in-a-hundred-years tidal wave was 5 years ago.

  3. Hugh

    OK I’m confused. I can see how a flight from stocks to cash would cause the yen to appreciate. But I don’t see how the government and central bank programs really can have anything other than a psychological effect because they don’t address the reasons for the flight.

    I agree with those above that the tottering edifice of world kleptocracy seems to be falling apart everywhere.

    The inability or unwillingness of the government and the power company to really convey that they have a clue as to what is going on with these reactors I think is going to really damage the Japanese image of competency. Last year it was the mess with Toyota. All this is on top of the death and destruction of the earthquake and tsunami. Those could be rationalized as acts of nature. What is happening at the nuclear plants and the failure to keep the public informed, not so much.

    1. DownSouth

      Meltdown of the economy or meltdown of nuclear reactors, doesn’t it send the same message?

      The unconditional faith we placed in the scientist kings, whether they were nuclear scientists or economists, was misplaced. And the misplaced trust was ubiquitous, meaning it was global.

      We were sold a bill of goods when we were told we could trade in our citizenship for radical individualism. Trust us, said the technocrats, we have your best interests at heart. Your duty is to vote once every couple of years for the candidates we pre-select for you, and shop. Consume and leave the rest—-all that dirty and unsavory stuff about politics—-to us. We are the scientist kings, and we are here to help you. The correction from below is not needed, nor wanted.

      So the hoi polloi were exorcised from the public arena, and the results are predictable. The French Revolution, described as follows by Hannah Arendt, was revoked, and as a result we have managed to turn back the clock back over 200 years to a time of feudalism and absolute monarchy:

      [W]e still can see and hear the multitude on their march, how they burst into the streets of Paris, which then still was the capital not merely of France but of the entire civilized world—-the upheaval of the populace of the great cities inextricably mixed with the uprising of the people for freedom, both together irresistible in the sheer force of their number. And this multitude, appearing for the first time in broad daylight, was actually the multitude of the poor and the downtrodden, who every century before had hidden in darkness and shame. What from then on has been irrevocable, and what the agents and spectators of revolution immediately recognized as such, was that the public realm—-reserved, as far as memory could reach, to those who were free, namely carefree of all the worries that are connected with life’s necessity, with bodily needs—-should offer its space and its light to this immense majority who are not free because they are driven by daily needs.

      [….]

      [T]he Revolution offered the opportunity of tearing the mask of hypocrisy off the face of French society, of exposing its rottenness, and, finally, of tearing the façade of corruption down and of exposing behind it the unspoiled, honest face of the peuple.

      The all-but-spectacular failure of the French Revolution, however, was not due to anything the monarchists did, but to the faulty thinking of the liberal theorists themselves, as Arendt goes on to explain:

      The extent to which the ambiguous character of the revolutions derived from an equivocality in the minds of the men who made them is perhaps best illustrated by the oddly self-contradicting formulations which Robespierre enunciated as the ‘Principles of Revolutionary Government’. He started by defining the aim of constitutional government as the preservation of the republic which revolutionary government had founded for the purpose of establishing public freedom. Yet, no sooner had he defined the chief aim of constitutional government as the ‘preservation of public freedom’ than he turned about, as it were and corrected himself: ‘Under constitutional rule it is almost enough to protect the individuals against the abuses of public power.’ With this second sentence, power is still public and in the hands of government, but the individual has become powerless and must be protected against it. Freedom, on the other hand, has shifted places; it resides no longer in the public realm but in the private life of the citizens and so must be defended against the public and its power. Freedom and power have parted company, and the fateful equating of power with violence, of the political with government, and of government with necessary evil has begun.

      [….]

      On a more sophisticated level, we may consider this disappearance of the ‘taste for political freedom’ as the withdrawal of the individual into an ‘inward domain of consciousness’ where it finds the only ‘appropriate region of human liberty’; from this region, as though from a crumbling fortress, the individual, having got the better of the citizen, will then defend himself against a society which in its turn gets ‘the better of individuality’. This process, more than the revolutions, determined the physiognomy of the nineteenth century as it partly does even that of the twentieth century.

      Arendt is undoubtedly turning over in her grave with how the very worst and most muddled thinking of the revolutionary thinkers has been so successfully exploited by the plutocrats in the first part of the 21st century.

      1. Siggy

        Over long paen to Hannah Arendt that. Surely you can do better. But then, perhaps not.

        A natural disaster is being compounded by the inundation of a nuclear facility. Seems that the nuclear facility has been built in the wrong place and its safety features inadequate to its loaction.

        Appears to me that our best interests lie helping the Japanese help themselves. As to the selloff in the Japanese stock market I read that as a marker of the character of financial markets. There will be financial losses. It is appropriate to reduce one’s exposure to those potential losses. It is an expression of the natural order of things. Should the Nikkie hold fast or should it adjust to trashed autos that were waiting for their ship?

        The decline in the Nikkie is an adjustment to what will become increased costs and lost earnings. It says nothing about the loss of life. It says nothing about a nuclear facility that is at the effect of an extraordianry natural event. Finding and assigning fault as to who located and built the reactor complex avoids the relevant question; How do we cleanup and repair the mess that nature has left us with.

        Dithering about some failure in the social order avoids dealing with the problem at hand. How do we cleanup the mess, save lives and rebuild. How do we help the Japanese help themselves. In the larger scheme of things, the Nikkie doesn’t really matter. And for that matter as to this event, Hannah Arendt and her philosophy has no application. For shame Down South, you can do better.

        1. craazyman

          Holy Cow Siggy You must be in a bad mood this morning. LOL.

          I don’t know how anyone can not relate this to the solar activity.

          The sun did this as a wake up call. And when you consider how big the sun is and how tiny we all are, there’s nothing we can do except try to heighten awareness of the Hilbert Spaces and transcend and rise.

          Not sure why it picked on the Japanese but it may be something karma related given the sun is the supreme metaphor of vision and they don’t like migrant workers. But it’s not just them, it could pick on just about anybody though and that’s what makes you look over your shoulder but when you do you walk right into a brick wall.

          Setting Science Back 1000 years, yours truly.
          Professor DT Tremulanus, GED

        2. DownSouth

          Man’s conquest of nature. That, and the quest for certainty, are what modernism is all about. And modernism entails not just man’s conquest of physical nature, but human nature as well.

          It was technology—-the use of science to harness nature to fulfill the needs and desires of human beings—-that held out the promise of freeing the masses from the necessity of toiling long hours every day just to satisfy basic daily needs. But nature, and this is true whether we speak of human nature or physical nature, is proving to be intractable.

          So now we see that the harnessing of nuclear power for what everyone assumed was “good” may turn out to be not-so-good after all.

          And the same can be said for much of the “good” that other technological “advancements” have produced. The burning of hydrocarbons, for instance, has produced unbearable smog, global warming, and poisoned oceans.

          And what has our “mastering” of human nature yielded? Capitalism: the inculcation of an insatiable drive for profit and accumulation? Public relations: the use of the latest technology to manipulate the masses? And to what purpose? To make people believe they must have endless accoutrement before they can be “happy”?

          But the consumer orgy has produced little fulfillment. What really makes people happy, once some very basic needs are met, are close relationships with family, friends and neighbors—-a sense of connectedness, of community and of belonging.

          What is brilliantly clear to me is that somewhere along the way we made a wrong turn. But what I glean from your comment is that this doesn’t matter, that the only thing that matters is that we keep the speeding train moving forward at any and all costs. This, after all, is “progress.” Where the train is going, where it’s taking us, is of no importance. And in order to keep from looking inward, you only look forward. Thus you tell us that “Finding and assigning fault as to who located and built the reactor complex avoids the relevant question; How do we cleanup and repair the mess that nature has left us with.” “Dithering about some failure in the social order,” you further admonish, “avoids dealing with the problem at hand. How do we cleanup the mess, save lives and rebuild.”

          I’d just like to interject something here that John Pilger said:

          One of my favorite quotations is from Milan Kundera. “The struggle of people against power is the struggle of memory against forgetting.” We should never forget that the primary goal of great power is to distract and limit our natural desire for social justice and equity and real democracy. Long ago Edward Bernays’ invisible government of propaganda elevated big business from its unpopular status as a kind of mafia to that of a patriotic driving force…. Today we are presented with an extraordinary opportunity thanks to the crash of Wall Street and the revelation for many ordinary people that the free market has nothing to do with freedom. The opportunity within our grasp is to recognize that something is stirring in America that is unfamiliar, perhaps, to many of us on the left, but is related to a great popular movement that is growing all over the world.
          http://www.youtube.com/watch?v=gXL998q7skI

          I believe Pilger is absolutely right. But there’s more causing the malaise all over the world than just the crash of Wall Street. Katrina, the GFC, the massive military failures in Iraq and Afghanistan, the uprisings in the Middle East, and now the nuclear power plant failures; one by one the girders which underpin modernism—-liberalism, capitalism, the war system, scientific objectivism—-are falling away. In my way of thinking, to believe that we can just blindly continue down this pathway, not knowing where we are, how we got here, or where we’re going, is pure madness.

        3. Ming

          Let’s distinguish the situation…. The Japanese earthquake and still burning Nuclear disaster is caused by nature…. I could be persuaded that we should look forward to how to help the Japanese people; and to examine and address all in-adequate designs and regulations in the nuclear industry. Blaming someone might not be a useful exercise. However, the world wide financial disaster starting in 2008 is a phenomenom entirely made by the works of men; some of whom have profited immensely either during the build up of the bubble or during the present disaster. In order for the world to move forward these individuals must be exposed and punished, and the sociopathic culture of malignant individualism and lies must be exorcised from Industry and government before the US can again build a stable prosperity for the future.

          1. DownSouth

            Ming,

            So the “Japanese earthquake and still burning Nuclear disaster is caused by nature,” but the “the world wide financial disaster starting in 2008 is a phenomenom entirely made by the works of men.”

            And what about the BP blowout? Katrina? Can you also fit those into some tidy little box with such ease?

            Oh to be able to compartmentalize things so neatly like you and Siggy do. It would make the world so simple. But to do so would require a horrible distortion of reality.

            But I certainly understand why you do this. In the contest between reality and ideology, it is reality that must take the hit. As Daniel Yankelovich explains in Coming to Public Judgment:

            Among the many devices people have for avoiding coming to grips with reality, the most common is to keep related aspects of an issue mentally separated, failing to make the proper connections between them. By compartmentalizing their thinking, people can maintain contradictory and conflicting opinions without being mentally discomforted.

            Your thinking is superficial. Seldom do you scratch below the surface to explore the philosophies and theologies which underlie belief structures. Perhaps no one put it better than Goethe:

            Like a big city, our moral and political world is undermined with subterranean roads, cellars, and sewers, about whose connection and dwelling conditions nobody seems to reflect or think; but those who know something of this will find it much more understandable if here or there, now or then, the earth crumbles away, smoke rises out of a crack, and strange voices are heard.

            But alas, even that could not induce you and Siggy to question your utopian vision of heaven on earth.

          2. Skippy

            @Ming…the licensed drive of a car pays the price whence they run up the backs side of another….not the weather.

            The universe has zero blame, we just like getting in the way and then cry when we get black eyes, our exceptionalism as a species shown in it’s real relative value.

            Skippy…BTW DS loved every thing you said, before the quotes and was it more powerful…spoke to me…

          3. Jed1571

            Ming,

            With due respect, I hope you understand that what Downsouth says is true. Of course there were “natural” forces at work here (I couldn’t quote your reference to nature given my sentence structure), but you seem to ignore the human arrogance on display by such a disaster. {as an aside, go read the thread at Economist’s view for further perspective on “intelligent” blog commentariat regarding nuclear power: http://economistsview.typepad.com/economistsview/2011/03/is-nuclear-power-still-the-answer.html}

            As a resident of New Orleans, I can appreciate Downsouth’s reference downthread a bit more than most, but that doesn’t change the basic logic of his comment (personally I think it is more resonant in the Katrina light, but both apply). Was Katrina a “natural” disaster? Not really… levees were built, levees were not built properly, levees failed to protect the city. Yeah, no hurricane, no flooded city… more importantly (in the selfish sense), had the “experts” really done their jobs, then the levees would have held and we would have all watched a major storm hit the gulf coast with about the effect of Hurricane Ivan (big, bad storm to be sure, but not even close to the overall effect on the gulf coast).

            People are in general way too accepting of the “expert” view of things and place far too much hope in those experts’ abilities to handle these types of disasters. It applies in this case as well as any other major catastrophe of late.

            After 2+ years of reading this blog (amongst others) and going through my own period of growing awareness, I can only say that Downsouth’s biggest problem is not realizing (or maybe just not pandering to ) how unaware most of the population is, even those that frequent sites like this one.

  4. gs_runsthiscountry

    I am at a loss for words this morning. There is a lot to digest in the world the recently.

    My only hope is the peoples of Japan can make themselves whole in a timely manner, and resurrect themselves from the harrowing, and ongoing, turn of events.

    To those uprising in North Africa and the Middle East, a phrase such as God Speed is in order.

    Lest we forget those troops in Afghanistan and Iraq, and hope for all those troops to return home safe.

    gs_

  5. mannfm11

    In 15 years, the definition of meglamaniac in the dictionary is going to have a picture of a central banker. If there is a shortage of money, it is because there is a shortage of buyers. People put their money into assets, not the central banks money. This idiot in the US has set in motion a mess that has already resulted in disaster. Not to get the economy going, but to give speculators and bankers cover for what amounts to gambling with the financial future of the country. Such an attitude has already sunk Japan for 20 years. Looks like mother nature has set it back another 20.

  6. anon

    Yves,

    At one point during last night’s trading session I heard a news wire service say that the Nikkei cash index was down 13% and that the Nikkei futures index was down 18% !!!

    Did you or anyone else hear that? Is (or was) the report true?

    A five-handle disparity between spot & futures is very worrisome.

    My guess is the Nikkei’s arbs turned off their machines, which enabled the spot & forward market to become unhinged from each other.

    Recall that on Friday Oct 16, 1987, the SPU spread traded almost 6 handles below its theoretical Fair Value. On Black Monday, the spread traded almost 30 handles below fair value. And on Tuesday Oct 20, it traded 45 handles below its fair value !!! But of course you couldn’t arb that spread on that day because too many stocks never opened.

    By contrast, during the May 6 Flash-Crash, (I’m told) the SPU spot/futures spread never got more than 3 handles from its theoretical fair value.

    So, I’d guess the Nikkei’s arbs turned off their machines last night because the BOJ’s interventions wreaked havoc on the forward tenors market causing them (as it did us) to turn off our machines.

    You can’t arb spot against forward without knowing the price of forward money market rates.

    btw: last night the illiquidity in the JPY fx market was reminiscent of the illiquidity I saw on the night that AIG died. And that ain’t good.

  7. Bernard

    thanks again, Yves, for this wonderful website and this ongoing conversation.
    it is really appreciated.

  8. Dave of Maryland

    Comments on this thread have made me think.

    Five years after two tsunamis that wiped the earth clean,

    Will the Indonesians be better off than the Japanese?

    With “better off” defined as restoring what was.

    The Japanese would seem to have further to fall, and so further to climb back, but, going head to head in terms of enjoyment of life, overall life expectancy (the simple things), etc., which country will heal itself faster & better? Who will come out ahead?

    1. Otter

      “better off”

      Which Indonesians (and Sri Lankans, and Indians, and …) do you mean? The ones who used to live on the coasts, or the disaster capitalists who pushed them aside?

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