By Ariana Eunjung Cha
Washington Post Staff Writer
Friday, March 11, 2011; 10:29 AM
Global stocks fell on Friday after a powerful 8.9 magnitude earthquake struck off the northeastern coast of Japan. The quake triggered a tsunami that geologists warned would likely hit other countries around the Pacific Coast sometime during the day.
The initial quake erupted in the last 30 minutes of trading on the Tokyo Stock Exchange, triggering a last-minute selling panic that left the Nikkei down 1.7 percent to 10,254-its lowest level since January.
Analysts said that the already anemic Japanese economy - recently overtaken by China as the world's second-largest economy -- will likely see a surge in government spending on emergency response costs, and a fall in consumption that will hurt the country's GDP.
The earthquake has the potential to trigger major deflation for a country that was already struggling. Nouriel Roubini, the New York University economist who predicted the global financial crisis, told Bloomberg Television that the earthquake is "certainly the worst thing that can happen in Japan at the worst time."
It was still too early to assess any long-term economic damage, analysts said, but the markets were already reacting with worry, accelerating the fall in equities and purchases of safe haven assets that was already underway because of concerns about political unrest in the Middle East.
The Dow Jones Industrial Average, S&P 500 and Nasdaq opened down slightly but began to skip between positive and negative territory later in the morning. Some U.S. energy stocks were up based on speculation of greater demand prompted by the earthquake, while some companies that depend on the Japanese market for revenues fell.
European markets sank to a three-month low before recovering some. Stocks of reinsurance companies - which could take big hits from damage claims -- were hammered, pushing the Stoxx Europe 600 index down 0.9 percent and London's FTSE 100 index lower by 0.5 percent. Hong Kong's Hang Seng index closed down 1.6 percent, South Korea's Kospi lost 1.3 percent, and Taiwan's Taiex slipped 0.9 percent.
Oil also plummeted to $100 a barrel.
Currency trading turned volatile on Friday. The yen dropped against the dollar in Asia before bouncing back. Other Asian currencies also fell after the quake.
The quake, the world's fifth-worst on record, left vast swaths of devastation in Japan. Homes and highways were swept away by a massive tsunami. A major steel plant was set ablaze. Power was out for millions of residents. Airports were shut down.
Japanese officials shut down a nuclear power plant in the area of the quake because of a problem with its cooling mechanism. The closure has the potential to roil coal, natural gas and oil markets worldwide because it provides about 30 percent of the nation's electricity.
Japanese media reported that Sony Corp, one of the country's biggest exporters, halted operations at six factories; two people were killed by a ceiling that collapsed at a Honda factory; Toyota stopped work at three factories; Nissan Motor had to extinguish two fires; and JX Nippon Oil & Energy Corp had to shut down operations at three refineries.
The Bank of Japan pledged to ensure financial stability, issuing a statement that it had set up an emergency task force to ensure ample liquidity. The bank said its settlement system was still up and expected to operate without disruption. Benchmark interest rates had already been cut to zero by the central bank, which had said last month that it believed the economy was picking up after a contraction in the fourth quarter of 2010.
Japan's economic outlook has been hurt by a political standoff between Prime Minister Naoto Kan and the country's leading opposition party. After the Asahi newspaper reported that Kan received $12,500 from a South Korean resident in violation of campaign rules, some called for his resignation and refused to pass bills authorizing bonds that would help finance the deficit.
Some credit-rating firms have lowered or warned of cuts in Japan's sovereign rating as a result as government debt is estimated to reach 210 percent of GDP in 2012-the world's highest.
The government spending for reconstruction efforts in the aftermath of the earthquake would only add to the country's fiscal troubles.