The Bank of Japan's pledge to secure financial stability was overwhelmed yesterday as panic set in on the Japanese sharemarket.
The Nikkei 225 Stock Average fell as much as 14 per cent in Tokyo to its lowest point since April 2009 and its worst two-day decline since at least 1970, according to data compiled by Bloomberg. The Nikkei rallied slightly to close down 10.5 per cent for the day.
Shares plummeted after Prime Minister Naoto Kan warned residents near a damaged nuclear power plant in tsunami-ravaged northeastern Japan to stay inside or risk getting radiation sickness.
Selling that had been confined to Japan spread throughout Asia. Benchmark indexes in China and Korea fell more than 2 per cent while Hong Kong's Hang Seng index declined more than 3 per cent.
In New Zealand the market fell 1.4 per cent and in Australia it closed down 2.1 per cent.
After Monday's $247 billion cash injection the Bank of Japan yesterday pumped a further $134 billion in to the Japanese economy.
But it did nothing to ease fears in the market which has now seen the Nikkei fall 16.1 per cent in just two days of trading.
"The market's chaos won't calm down unless the BOJ will take more bold actions," said Susumu Kato, chief economist for Japan at Credit Agricole CIB and CLSA in Tokyo.
"A further plunge in stocks will pressure the BOJ into additional easing."
The bank has also decided to double its asset-purchase programme to 10 trillion ($167 billion), an increase that's about one-tenth the size of the US 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, yesterday.
"What the BOJ should do now is to anchor investors' sentiment" with accelerated purchases in its programme, he said.
Credit Suisse economist Hiromichi Shirakawa and analysts at Barclays Capital estimated the damage from the earthquake at up to 15 trillion - about 3 per cent of gross domestic product. Other experts warned the economy will shrink for two straight quarters.
That represents a painful blow for the Japanese economy, which has been ailing for two decades, barely managing to eke out weak growth between slowdowns. It is saddled with a massive public debt that, at 200 per cent of GDP, is the biggest among industrialised nations.
"People might see an already weakened Japan, overshadowed by a growing China, getting dealt the finishing blow from this quake," said Koetsu Aizawa, economics professor at Saitama University, north of Tokyo.
Peter Morici, a business professor at the University of Maryland, said the nuclear crisis combined with the twin hit from the quake and tsunami could make Japan more vulnerable than it was in the past.
"The double whammy has the potential to keep the Japanese economy shut down longer and globalisation offers Japan's export customers alternatives they might not have enjoyed a decade or two ago," he said. "Hyundai and Ford now are good substitutes for Toyota's cars, and ... Caterpillar tractors made in China can replace Komatsu's land movers."
The four most severely affected prefectures (states) in the northeast - Iwate, Miyagi, Fukushima and Ibaraki - account for about 6 per cent of Japan's economy.
Real estate companies in the broader Topix index had the biggest plunge, falling as much as 23 per cent, followed by losses of more than 17 per cent in utility companies. The smallest retreat was a 6 per cent drop in insurance companies.
- BLOOMBERG, AP