Asian Stocks, U.S. Futures Tumble on Japan Quake; Gold Gains
Asian shares fell, with the Nikkei 225 Stock Average tumbling the most since 2008, after Japan’s biggest earthquake on record sent oil lower and spurred a jump in gold and default risk. The euro rose after European leaders agreed to expand a rescue fund for cash-strapped governments.
The MSCI Asia Pacific Index sank 3.1 percent to 130.88 as of 1 p.m. in Tokyo and the Nikkei 225 plunged 6.2 percent. Standard & Poor’s 500 Index futures slid 0.5 percent. The cost of protecting Japan’s sovereign and corporate bonds from non- payment surged. The yen weakened against 12 of 16 major currencies after the central bank injected 15 trillion yen ($183 billion) into the financial system. Crude oil retreated for a fifth day in New York, while gold advanced 0.4 percent.
Prime Minister Naoto Kan said yesterday Japan is facing its worst crisis since World War II after a March 11 earthquake and ensuing tsunami killed an estimated 10,000 people and caused explosions at a nuclear power plant. In Europe, officials broadened the size and scope of their 440 billion-euro ($614 billion) bailout fund and eased the terms of Greek rescue loans in a pact struck in the early hours of the weekend.
“I expect a weaker tone to pervade Asian markets,” said Tim Schroeders, who helps manage $1 billion at Pengana Capital Ltd. in Melbourne. “Uncertainty about the ultimate impact of Friday’s earthquake and tsunami are likely to see investors adopt a cautious stance.”
About three stocks dropped for each that gained on MSCI’s Asia index. Toshiba Corp., a maker of nuclear reactors, and Tokio Marine Holdings Inc., Japan’s second-largest casualty insurer, paced losses on the Nikkei 225. Posco, South Korea’s biggest steelmaker, rallied 6.4 percent, leading gains among steel and construction-material suppliers on speculation of increased demand from reconstruction in Japan.
The temblor and tsunami may have killed 10,000 people in Miyagi prefecture north of Tokyo, according to the local police department. The official toll reached 1,597, with 1,481 more missing and 1,683 injured, the National Police Agency said. More than 350,000 people are in emergency shelters.
Japan’s bonds rose for a second day, pushing yields on benchmark five-year notes down by the most since October 2008. The rate slid 10 basis points to 0.465 percent. Five-year credit-default swaps on Japanese government debt surged 13 basis points to 92 points, the biggest increase since February 2009 and the highest level in eight months, according to prices from Deutsche Bank AG and data provider CMA.
The Markit iTraxx Japan index soared 20.5 basis points to 118 points, the biggest gain since May 25, according to Deutsche Bank AG and CMA. Credit-default swaps on Tokyo Electric Power Co., which is battling to avoid a meltdown at its Fukushima nuclear plant, jumped 70 basis points to 112.5 points, Deutsche Bank AG said. That’s the highest on record, according to CMA data going back to 2004.
The yen retreated from a four-month high as the Bank of Japan added money to the financial system and on speculation policy makers will intervene in foreign-exchange markets by selling the currency to aid exporters. The government sold 2.12 trillion yen in September in its first intervention since 2004. The currency hit 80.22 per dollar on Nov. 1, the strongest since April 1995, when it reached a postwar record of 79.75.
The yen reached a high of 80.62 today, before trading at 82.16 from 81.84 in New York last week. It also fell 0.5 percent to 114.37 per euro. Bank of Japan Governor Masaaki Shirakawa told reporters yesterday that he’s ready to unleash “massive” liquidity as policy makers seek to assure financial stability.
The euro climbed 0.2 percent to $1.3925 after the region’s leaders negotiated an accord to allow primary-market bond purchases that will offer a lifeline to aid recipients in return for austerity commitments. The deal broke a deadlock as policy makers sought to extinguish a crisis that has raged for more than a year and forced Greece and Ireland to seek financial aid.
Leaders will allow the facility to spend its full 440 billion-euro capacity, removing restrictions that would have capped outlays at about 250 billion euros, though it won’t be used to finance bond buybacks for debt-strapped states. A final agreement is slated for a summit on March 24-25.
“The European accord is quite significant and a better outcome than the market was expecting so that will be a positive or the euro,” said Khoon Goh, head of market economics and strategy at ANZ National Bank Ltd. in Wellington. “With the ECB looking to hike rates in April the euro could be ripe to break that key $1.40 level in the near-term.”
Oil for April delivery fell 1.5 percent to $99.62 a barrel on concern Japan’s quake will limit demand in the world’s third- largest economy and crude user.
Copper for three-month delivery decreased 0.9 percent to $9,110 a metric ton on the London Metal Exchange on concern that the earthquake will hurt metals demand in the coming months as carmakers and other Japanese manufacturers suspend or curtail output. Aluminum and nickel also dropped. Gold for immediate delivery climbed for a second day, trading at $1,422.73 an ounce.
Roubini Earthquake Gloom Meets `Shock Doctrine': William Pesek
It always struck me as odd that Japanese bookstores have not just earthquake sections, but entire aisles of titles devoted to tectonic upheavals. After Friday’s big one, I’m now a believer in quake-ology.
Temblors have a complicated place in the Japanese psyche. There’s a widely held belief, a local mythology, that tectonic- plate shifts can coincide with big ones above the ground, too.
An 1855 earthquake that destroyed much of modern-day Tokyo bookmarked the twilight of the Tokugawa period, during which Japan was isolated for two centuries. Rebuilding efforts after the devastation of 1923 coincided with the rise of Japanese militarism. Kobe’s 1995 tragedy dovetailed with the end of Japan’s postwar industrial boom and the advent of deflation.
Might this latest trauma also signal historic change?
Economist Nouriel Roubini has a point when he says the earthquake came at the “worst time” as Japan struggles to reduce its massive debt. Let’s go the other way for a moment, and explore three potential silver linings from this quake.
One, it’s a wake-up call. Japan dithered for years as deflation deepened, wages stagnated and public debt exceeded gross domestic product. Even after China’s economy blew past Japan in 2010 and a Standard & Poor’s downgrade in January, officials in Tokyo remained as paralyzed as ever.
The days before Friday’s quake saw Japanese politics at its worst. Foreign Minister Seiji Maehara, a 48-year-old who had been tipped to be the next prime minister, was browbeaten into resigning over a clerical error. His campaign received 250,000 yen ($3,053) since 2005 from a South Korean woman residing in Japan. By Friday morning, before the quake, the opposition was digging up similarly petty dirt on Prime Minister Naoto Kan.
‘The Shock Doctrine’
Such complacency and distraction is no longer an option. Japan’s leaders must now roll up their sleeves to rebuild after the strongest earthquake on record. And they must do so without the luxury of massive borrowing. As Roubini, co-founder of Roubini Global Economics LLC in New York, says, a “shock like this” complicates reining in the world’s biggest public debt.
Yet with a little political will, another kind of shock could befall Japan, one author Naomi Klein explored in 2007’s “The Shock Doctrine.” Klein’s focus is on free-market ideologues who exploit crises to impose rapid and irreversible change in nations around the world. Fate may have just handed Japan a chance to unleash the doctrine on itself.
Japan might well benefit from any shakeup that encourages entrepreneurship from the ground up, increases competitiveness and imposes change on the decidedly change-resistant bureaucrats who really run the nation. For years, pundits said only a major crisis will bring about change in Japan. March 11 provided the shock; leaders just need to act accordingly.
Two, a chance to make-up with China. The seemingly inexorable rise of 1.3 billion people and the competitive forces that come with such an economic event are bringing Japan and South Korea together, helping overcome hard feelings over a colonial past.
Now, China’s rapid offer of help and condolences to Japan’s earthquake victims could go a long way toward reducing tensions. It’s the rare event that gets officials in Tokyo and Beijing to put aside prickly disagreements over economic, territorial, military and historical disputes. And here, we have one.
This Chinese solidarity stands in stark contrast to the angry rhetoric of the past six months. The period saw anti- Japanese demonstrations in Chinese cities, the scrapping of tourist trips to Japan, the cancellation of some diplomatic exchanges and the rationing of rare-earth metals exports.
If Asia is going to increase regional cooperation, the leaders of Japan and China must have a decent working relationship. Last week’s earthquake offers a chance for a fresh start. Let’s hope it catalyzes a broader softening of relations.
Three, a boost to Japanese confidence. In the days since the earthquake, editorials in Chinese newspapers shifted from bashing Japan to exploring what Chinese can learn from Japan’s speedy response and the orderliness of its people.
It’s a valid point. While it’s early days in the rescue effort, Japan has much to be proud of, from the way Tokyo’s skyline withstood the tectonic assault to the lack of looting and social instability. The nation has shown itself to be a highly civil, stable and caring place.
Tough building codes, training and lessons from the 1995 Kobe earthquake that killed more than 6,000 people probably saved thousands of lives this time around.
Certainly, problems abound. The most immediate is containing the worst nuclear accident in at least 33 years, at a plant north of Tokyo. At a minimum, Japan must scrutinize the safety record of Tokyo Electric Power Co. as never before.
Nor is the unpopular Kan distinguishing himself. Information from his office has been lacking and downright contradictory at times. Kan was basically on his way out before the earthquake, and how he handles things in the next few days will decide his political fate.
Yet in this time of devastation and uncertainty, Japan has shown it runs well on many levels in spite of its government. This is a moment for sorrow and reflection, yes. It’s also a time to look ahead to brighter days. They could indeed be on the way.
Japan quake toll could number in tens of thousands
More than 500,000 people have been forced to evacuate in the wake of the massive earthquake and tsunami, with many cut off from food, electricity and water. Los Angeles rescue team arrives in Japan. Power rationing begins.
Vehicles and debris litter the Natori neighborhood hit hard by the tsunami. (Brian van der Brug / Los Angeles Times / March 13, 2011)
A new explosion rocked the stricken Fukushima Daiichi nuclear power complex, wire services reported, sending a plume of smoke into the air. Japan's nuclear safety agency said it could not confirm whether the hydrogen explosion at the plant's No. 3 reactor had led to an uncontrolled leak of radioactivity.
The government reported Monday that radiation levels again rose above legal limits outside the crippled nuclear complex at quake-battered Fukushima, about 150 miles north of Tokyo, where authorities have been pumping seawater into overheated reactors to try to cool them down. Several other nuclear installations were under close watch for potential problems.
Across a wide swath of earthquake-hit territory, hundreds of thousands of hungry survivors roused themselves from a third cold night spent huddled in darkened emergency centers, cut off from rescuers, aid and electricity. At least 1.4 million households had gone without water since the quake struck and some 1.9 million households were without power. Rolling blackouts to conserve energy were scheduled across much of the country on Monday.
Photos: Scenes of earthquake destruction
In Tokyo and other large cities outside the quake zone, the first full workday since Friday's temblor began with delays and disruptions. Many of the train lines that normally run between Tokyo and outlying suburbs and surrounding cities were either running far less frequently than normal or not running at all. Subway and train lines crisscrossing the capital were also curtailed.
With fears about how the world's third-largest economy would weather the ongoing fallout from the massive quake, Japan's main stock index, the Nikkei, opened down Monday morning by just over 2%. The central bank said it was prepared to flood the money markets with cash to keep the financial system running smoothly.
A full reckoning of deaths and damage could take weeks, but the picture grew grimmer with each passing hour.
"We have no choice but to deal with the situation on the premise that it [the death toll] will undoubtedly be numbered in the ten thousands," Naoto Takeuchi, head of the Miyagi prefectural police, told a Kyodo reporter during a local disaster task force meeting.
An international rescue effort gathered force, with teams arriving from China, New Zealand, Germany and the United States, among other nations. A Los Angeles County Fire Department search-and-rescue team arrived at Misawa Air Base about 400 miles north of Tokyo about 3 p.m. Sunday with 74 tons of equipment, including swift-water rescue gear and six search dogs, spokesman Don Kunitomi said.
That team joined two other crews from Fairfax County, Va., and Britain that are scheduled to travel together to Miyagi to aid search-and-rescue efforts.
"We are glad to accept all the help we can get to assist the people of Japan," said Air Force Col. Michael Rothstein, 35th Fighter Wing commander at Misawa. "We will do whatever is in our means to support their efforts in this time of need."
There were some dramatic rescues of tsunami survivors Sunday, including that of a 60-year-old man who had been waiting for help since he was swept out to sea Friday.
Hiromitsu Shinkawa was spotted by rescuers at 12:40 p.m. nine miles off shore by the crew of a Japanese Maritime Self-Defense Force destroyer, according to Jiji Press.
Shinkawa, from the devastated city of Minamisoma, was conscious and in "good condition" after the rescue, Japanese officials said.
"I ran away after learning that the tsunami was coming," Shinkawa told rescuers, according to Jiji Press. "But I turned back to pick up something at home, when I was washed away. I was rescued while I was hanging to the roof from my house."
In Rikuzentakata, a port city of about 20,000 leveled by the tsunami, Etsuko Koyama escaped the water rushing through the third floor of her home but was unable to hold on to her daughter's hand, she told Japanese broadcaster NHK. The girl was swept away by floodwaters and had still not been found Sunday, Koyama said.
"I haven't given up hope yet," Koyama told NHK, wiping tears from her eyes. "I saved myself, but I couldn't save my daughter."
About 5,000 houses in Rikuzentakata were submerged by the tsunami, and most of the 7,200 houses in Yamada were also under water, Kyodo reported. In Otsuchi, the tsunami swept away the town office.
At two reactors, a race to contain meltdowns
Tokyo Electric Power Co. entered Day 4 of its battle against a cascade of failures at its two Fukushima nuclear complexes, using fire pumps to inject tens of thousands of gallons of seawater into two reactors to contain partial meltdowns of ultra-hot fuel rods.
Japanese officials say they believe a hydrogen explosion occurred at the Fukushima Daiichi nuclear plant, similar to an earlier one at a different facility. TV footage shows a wide plume of white smoke shrouding the base of the entire plant.
Government spokesman Yukio Edano said that based on initial reports, the explosion did not damage the container vessel. Radiation level near the plant will go up, as happened with Saturday’s explosion. There are no initial reports of injuries.
Pumping seawater into the plants produced high pressures and vapors that the company vented into its containment structures and then into the air, raising concerns about radioactivity levels in the surrounding area where people have already been evacuated. The utility said that at one of the huge, complicated reactors, a safety relief valve was opened manually to lower the pressure levels in a containment vessel.
But the limited vapor emissions were seen as far less dire than the consequences of failure in the fight against a more far-reaching partial or complete meltdown that would occur if the rods blazed their way through the reactor’s layers of steel and concrete walls.
The potential size of the area affected by radioactive emissions could be large. A state of emergency was declared briefly at another nuclear plant called Onagawa after elevated radioactivity levels were detected there. Later Japanese authorities blamed the measurement on radioactive material that had drifted from the Fukushima plant more than 75 miles away, according to the International Atomic Energy Agency.
The IAEA noted that forecasts said winds would be blowing to the northeast, away from the Japanese coast, over the next three days.
Tokyo Electric said that radioactivity levels both inside the plant and at its nearby monitoring post were higher than normal. The Nuclear Energy Institute, an industry group in the United States, reported that the highest recorded radiation level at the Fukushima Daiichi site was 155.7 millirem at 1:52 p.m. on March 13; radiation levels fell to 4.4 millirem by the evening. The Nuclear Regulatory Commission’s radiation dose limit for the public is 100 millirem per year.
In addition to one worker hospitalized for radiation exposure, two others felt ill during stints in the control rooms of Fukushima Daiichi units 1 and 2.
While Tokyo Electric said it also continued to deal with cooling system failures and high pressures at half a dozen of its 10 reactors in the two Fukushima complexes, fears mounted about the threat posed by the pools of water where years of spent fuel rods are stored.
At the 40-year-old Fukushima Daiichi unit 1, where an explosion Saturday destroyed a building housing the reactor, the spent fuel pool, in accordance with General Electric’s design, are placed above the reactor. Tokyo Electric said that it was trying to figure out how to maintain water levels in the pools, indicating that the normal safety systems there had failed too. Failure to keep adequate water levels in a pool would lead to a catastrophic fire, said nuclear experts, some of whom believe that unit 1’s pool may now be outside.
“That would be like Chernobyl on steroids,” said Arnie Gundersen, a nuclear engineer at Fairewinds Associates Inc. and a member of the public oversight panel for the Vermont Yankee nuclear plant, which is identical to the Fukushima Daiichi unit 1.
Gundersen said the unit 1 pool could have as much as 20 years of spent fuel rods, which are still radioactive.
At Fukushima Daiichi unit 3, Tokyo Electric said the government ordered a halt to the pumping of seawater for a time as pressures and hydrogen levels rose in the containment structure, causing fears of an explosion like the one that destroyed the building around unit 1.
Victor Gilinsky, a former commissioner at the Nuclear Regulatory Commission, said that in order to produce hydrogen, temperatures inside the reactor core had to be well over 2,000 degrees and as high as 4,000 degrees Fahrenheit. He said a substantial amount of fuel had to be exposed at least at some point.
The Fukushima Daiichi unit 3, built by Toshiba, is 37 years old. Last year, the unit began using some reprocessed fuel known as “mox,” a mixture of plutonium oxide and uranium oxide, produced from recycled material from nuclear weapons as part of a program known as “from megatons to megawatts.” Anti-nuclear activists have called mox more unsafe than enriched uranium. If it escapes the reactor, plutonium even in small quantities can have much graver consequences on human health and the local environment for countless years, much longer than other radioactive materials.
Kyodo news agency cited Tokyo Electric as saying that more than three yards of a mox nuclear-fuel rod had been left above the water level, raising concerns that bits of plutonium or its byproducts may already be mixed into vapors or molten material.
The Fukushima Daiichi unit 3, once capable of generating 784 megawatts of power, is substantially bigger than unit 1, which generated about 460 megawatts. As a result, getting temperatures in its reactor core could prove a much tougher task, experts said.
Japanese officials were also trying to figure out whether Friday’s earthquake, or the subsequent high pressures and temperatures in the reactors, had caused other cracks or leaks in reactors in the region. So far officials have not said that they have found any, though they have noted still unexplained losses of water in some reactor vessels.
Though Fukushima Daiichi units 1 and 3 posed the gravest dangers for now, Tokyo Electric said it was still working on its other units. At Fukushima Daiichi unit 2, initially thought to be worst affected by the earthquake, cooling water levels were lower than normal but stable, the company said.
Tokyo Electric also said it had released vapors with some radioactive materials at all four of the reactors at its second Fukushima complex — Fukushima Daini — on March 12. After injecting water into the reactors, the company said that water levels were stable, off-site power restored and shutdowns complete or in progress. Nonetheless, Japan’s Nuclear and Industrial Safety Agency said Monday that Fukushima Daini units 1, 2 and 4 remained in a nuclear state of emergency.
The crisis at the Japanese nuclear reactors began when the earthquake last Friday disabled the power grid that the reactors use to run cooling systems. Backup diesel generators at the seaside plants were later disabled by the tsunami. Backup batteries lasted only a few hours. For a period of time, the Fukushima Daiichi complex is believed to have been completely blacked out. During that time, the cooling systems failed to prevent a steep rise in temperatures in the reactor core.
Death Toll Estimate in Japan Soars as Relief Efforts Intensify
By MARTIN FACKLER and MARK McDONALD
SENDAI, Japan — Japan reeled from a rapidly unfolding disaster of epic scale on Sunday, pummeled by the death toll, destruction and homelessness caused by the earthquake and tsunami and new hazards from damaged nuclear reactors that were leaking radiation. The prime minister called it Japan’s worst crisis since World War II.
Japan’s $5 trillion economy, the third largest in the world, was threatened with severe disruptions and partial paralysis as many industries shut down and the armed forces and volunteers mobilized for the far more urgent effort of finding survivors, evacuating residents near the stricken power plants and caring for the victims of the 8.9 magnitude quake that struck on Friday.
The disaster has left more than 10,000 people dead, many thousands homeless and millions without water, power, heat or transportation.
The most urgent worries concerned the failures at two reactors at the Fukushima Daiichi nuclear power plant, where engineers were still struggling to avert meltdowns and where some radiation had already leaked. An explosion at one of the reactors on Monday did not appear to have harmed it, Japanese officials said.
Fukushima Daiichi and another power station, Fukushima Daiini, about 10 miles away, have been under a state of emergency since the quake. The collective anxiety about Japan caused a rout in the Japanese stock market on Monday morning, with the main index falling 5.5 percent, the worst drop in three years.
Worried about the severe strains on the banking and financial systems, the Bank of Japan pumped about $86 billion into the economy on Monday, and the government was discussing an emergency tax increase to help finance relief and recovery work.
The Tokyo Electric Power Company, which operates the country’s crippled nuclear power grid, announced a series of rotating blackouts to conserve electricity — the first controlled power cuts in Japan in 60 years.
The death toll was certain to climb as searchers began to reach coastal villages that essentially vanished under the first muddy surge of the tsunami, which struck the nation’s northern Pacific coast near the port city of Sendai. In one town alone, the port of Minamisanriku, a senior police official said the number of dead would “certainly be more than 10,000.” That is more than half the town’s population of 17,000.
Prime Minister Naoto Kan told a news conference in Tokyo late Sunday: “I think that the earthquake, tsunami and the situation at our nuclear reactors makes up the worst crisis in the 65 years since the war. If the nation works together, we will overcome.”
The government ordered 100,000 troops — nearly half the country’s active military force and the largest mobilization in postwar Japan — to take part in the relief effort. An American naval strike group led by the nuclear-powered aircraft carrier Ronald Reagan also arrived off Japan on Sunday to help with refueling, supply and rescue duties.
The quake and tsunami did not reach Japan’s industrial heartland, although economists said the power blackouts could affect industrial production — notably carmakers, electronics manufacturers and steel plants — and interrupt the nation’s famously efficient supply chain. Tourism was also bound to plummet, as the United States, France and other nations urged citizens to avoid traveling to Japan.
AIR Worldwide, a risk consultant in Boston, said its disaster models estimated property damage to be as high as $35 billion. The company said 70 percent of residential construction in Japan was wood, and earthquake insurance was not widely used.
Amid the despair and the worry over an unrelenting series of strong aftershocks, there was one bright moment when the Japanese Navy rescued a 60-year-old man who had been floating at sea for two days.
The man, Hiromitsu Arakawa, clung to the roof of his tiny home in the town of Minamisoma after it was torn from its foundations by the first wave of the tsunami, the Defense Ministry said. He saw his wife slip away in the deluge, but he hung on as the house drifted away. He was discovered late Sunday morning, still on his roof, nine miles south of the town and nine miles out to sea.
The quake was the strongest to hit Japan, which sits astride the “ring of fire” that designates the most violent seismic activity in the Pacific Basin.
Radioactive Releases in Japan Could Last Months, Experts Say
By DAVID E. SANGER and MATTHEW L. WALD
WASHINGTON — As the scale of Japan’s nuclear crisis begins to come to light, experts in Japan and the United States say the country is now facing a cascade of accumulating problems that suggest that radioactive releases of steam from the crippled plants could go on for weeks or even months.
The emergency flooding of two stricken reactors with seawater and the resulting steam releases are a desperate step intended to avoid a much bigger problem: a full meltdown of the nuclear cores in two reactors at the Fukushima Daiichi Nuclear Power Station. On Monday, an explosion blew the roof off the second reactor, not damaging the core, officials said, but presumably leaking more radiation.
So far, Japanese officials have said the melting of the nuclear cores in the two plants is assumed to be “partial,” and the amount of radioactivity measured outside the plants, though twice the level Japan considers safe, has been relatively modest.
But Pentagon officials reported Sunday that helicopters flying 60 miles from the plant picked up small amounts of radioactive particulates — still being analyzed, but presumed to include cesium-137 and iodine-121 — suggesting widening environmental contamination.
In a country where memories of a nuclear horror of a different sort in the last days of World War II weigh heavily on the national psyche and national politics, the impact of continued venting of long-lasting radioactivity from the plants is hard to overstate.
Japanese reactor operators now have little choice but to periodically release radioactive steam as part of an emergency cooling process for the fuel of the stricken reactors that may continue for a year or more even after fission has stopped. The plant’s operator must constantly try to flood the reactors with seawater, then release the resulting radioactive steam into the atmosphere, several experts familiar with the design of the Daiichi facility said.
That suggests that the tens of thousands of people who have been evacuated may not be able to return to their homes for a considerable period, and that shifts in the wind could blow radioactive materials toward Japanese cities rather than out to sea.
Re-establishing normal cooling of the reactors would require restoring electric power — which was cut in the earthquake and tsunami — and now may require plant technicians working in areas that have become highly contaminated with radioactivity.
More steam releases also mean that the plume headed across the Pacific could continue to grow. On Sunday evening, the White House sought to tamp down concerns, saying that modeling done by the Nuclear Regulatory Commission had concluded that “Hawaii, Alaska, the U.S. Territories and the U.S. West Coast are not expected to experience any harmful levels of radioactivity.”
But all weekend, after a series of intense interchanges between Tokyo and Washington and the arrival of the first American nuclear experts in Japan, officials said they were beginning to get a clearer picture of what went wrong over the past three days. And as one senior official put it, “under the best scenarios, this isn’t going to end anytime soon.”
The essential problem is the definition of “off” in a nuclear reactor. When the nuclear chain reaction is stopped and the reactor shuts down, the fuel is still producing about 6 percent as much heat as it did when it was running, caused by continuing radioactivity, the release of subatomic particles and of gamma rays.
Usually when a reactor is first shut down, an electric pump pulls heated water from the vessel to a heat exchanger, and cool water from a river or ocean is brought in to draw off that heat.
But at the Japanese reactors, after losing electric power, that system could not be used. Instead the operators are dumping seawater into the vessel and letting it cool the fuel by boiling. But as it boils, pressure rises too high to pump in more water, so they have to vent the vessel to the atmosphere, and feed in more water, a procedure known as “feed and bleed.”
When the fuel was intact, the steam they were releasing had only modest amounts of radioactive material, in a nontroublesome form. With damaged fuel, that steam is getting dirtier.
The new big idea from business’s greatest living guru seems a bit undercooked
HE HAS been one of the world’s leading business thinkers for three decades. His work on strategy forms the foundation-stone of business-school courses the world over. Business titans and prime ministers beat a path to his door. In so far as there is an official line in the managerial world, Michael Porter lays it down. Mr Porter’s recent books are as chunky as his earlier ones: his 2006 tome on health-care reform might have been more influential had it made more concessions to the reader. His students smirk at his arriving for classes with an entourage of flunkies. But most regard his lessons as high-points of their time at Harvard.
Yet Mr Porter has not had the equivalent of a number-one hit since “The Competitive Advantage of Nations” 20 years ago. He is also discovering that there is a downside to hobnobbing with the world’s most powerful people. Like Tony Blair, Britain’s former prime minister, and Howard Davies, who resigned last week as director of the London School of Economics, he helped to engineer the rapprochement between the West and Libya’s murderous Qaddafi regime. Mr Porter’s boasts about his dinners with Saif al-Islam Qaddafi now seem deeply embarrassing.
So for the sake of Mr Porter’s brand a good deal depends on the reception of his latest big idea. He claims to have found nothing less than a formula for reinventing capitalism: “shared value”. Old-fashioned capitalists focus too narrowly on profits, he argues. Newfangled corporate social responsibility (CSR) types are bewitched by the idea that there is a tension between business and society. But shared value offers companies a way to pursue their self-interest while also acting in the common good. It will unleash a cascade of innovation and productivity gains. And provide capitalism with the popular legitimacy it clearly needs.
What does this mean in practice? Mr Porter focuses on three things. First, the need to create market “ecosystems”, especially when selling to the poorest in developing countries; this may require firms to make partnerships with NGOs and governments. Second, expanding their value chains to include such unconventional partners. And third, creating new industrial clusters.
Some of the examples Mr Porter provides are already familiar. GE’s “ecomagination” strategy of creating environmentally friendly products is said to be responsible for $18 billion in annual revenues. Walmart has saved a fortune by reducing wasteful packaging. IBM and Intel are helping utilities cut power use. Five per cent of Unilever’s sales in India now come from an army of underprivileged women entrepreneurs. Some are less well-known, such as a scheme to support small cocoa farmers in Côte d’Ivoire, which raised their incomes by over 300% by improving yields, product quality and procurement.
Opinion is divided on Mr Porter’s big new idea. He thinks “shared value” may have at least as big an impact as his earlier work. Many corporate titans echo his sentiments. The bosses of PepsiCo, Nestlé, Prudential (of Britain) and Petrobras expressed enthusiasm about his arguments at the recent Davos summit. However, Larry Summers, a former American Treasury secretary and a colleague of Mr Porter’s at Harvard, was overheard asking “Do you seriously believe this [expletive unrecorded]?”
Mr Porter is right to worry that capitalism is suffering a crisis of legitimacy. The 2007-08 global economic panic has generated widespread worries that the capitalist system is too short-term and too crisis-prone. He is also right that CSR—the boardroom’s favourite response to this crisis of legitimacy—is a tired label. Two of its loudest corporate proponents, Enron and BP, messed up dramatically. Few people outside the public-relations industry can listen to the CSR mantras of “win-win” and “doing well by doing good” without grimacing.
Mr Porter’s examples suggest he is mostly concerned with encouraging companies to be less short-termist: he thinks they should understand better that environmental damage harms the bottom line too, so it is in their direct interest to curb it; and firms selling in the emerging world must do more to help consumer markets develop. But none of this is new: efforts have been made for years to get companies to see the full benefits of cutting pollution, while emerging-world giants like Hindustan Unilever and Tata are well aware that they are in the business of creating and shaping markets. There is a striking similarity between shared value and Jed Emerson’s concept of blended value, in which firms seek simultaneously to pursue profit and social and environmental targets. There is also an overlap with Stuart Hart’s 2005 book, “Capitalism at the Crossroads”.
Worse, it is not clear that Mr Porter has come up with any tangible improvement on the current way of doing business. Is it true that shared value will “drive the next wave of innovation and productivity growth in the global economy”, or merely a pious hope? For all we know the next such wave may come from energy-hungry, socially divisive businesses, given the paucity of evidence Mr Porter offers to support his thesis. His arguments have some common flaws: he persistently plays down the difficult trade-offs that businesses often have to make, even in ventures with clear potential for social good (eg, advising a ravaged country on how to cut poverty, at the risk of bolstering its dictatorship). In arguing that “the purpose of the corporation must be redefined as creating shared value, not just profit per se,” he risks giving politicians carte blanche to meddle in the private sector.
No one should underestimate Mr Porter’s intellectual energy or ambition. He has colonised entire fields of business theory. He has published 18 books to date. But for “shared value” to have the same impact that his earlier output undoubtedly had, he will need to do a lot more work on the idea.
Politicians are ignoring a big, dysfunctional programme
LAKE COUNTY, INDIANA | from the print edition
THOMAS SCULLY has a busy law office in Lake County, Indiana. He mainly practices disability law, with good reason. Lake County is home to steel mills. Workers have aching backs and hands warped by machinery. Mr Scully helps them win Social Security Disability Insurance (DI), which provides cash and, after two years, access to Medicare, government-subsidised health insurance meant mainly for the elderly. DI is not supposed to be a safety net for the jobless. “I tell clients”, Mr Scully explains, “disability insurance is not unemployment insurance.” But they should be forgiven for being confused.
Politicians like to deride expensive programmes. DI may be the least discussed and most muddled. The programme is severely strained. The number of awards has spiked in the downturn, rising 28% since 2007. This surge follows decades of growth. DI accounted for about 10% of Social Security spending in 1989 but 18% by 2009. This is not because beneficiaries are bending any rules; the real problem is that the rules are a mess.
Congress created DI in 1956. Since then physical labour has become less common, while medical technology has advanced. One might have thought that DI rolls would shrink, but the opposite has occurred. Even compared with the Social Security Administration’s other costly programme for the disabled, DI is huge. Supplemental Security Income (SSI), which gives help to the very poor, doled out $43 billion to adults and children in 2010, up 124% since 1990. DI gave $110 billion to disabled workers, up almost 420%.
The reasons for this are debated. States have an incentive to keep their welfare rolls low, so they may be pushing workers towards the federally funded SSI and DI programmes, argues Nancy Shor of the National Organisation of Social Security Claimants’ Representatives, a lawyers’ group. But unlike SSI, DI is not a substitute for welfare; DI requires beneficiaries to have worked for five of the past ten years.
Ageing would seem another obvious explanation, as those aged 50-64 account for almost 60% of DI awards. But the rolls grew quickly even when the share of 50- to 64-year-olds was steady, according to David Autor of the Massachusetts Institute of Technology and Mark Duggan of the University of Maryland. Obesity does not seem to be the main cause either. Beneficiaries claiming problems such as diabetes and heart disease comprised a sliver of the awards in 2009.
A more likely culprit is the programme’s structure. Messrs Autor and Duggan show that DI awards have become more attractive to those struggling in the labour market. Those awards, meanwhile, have become more accessible. In 1984 Congress made it easier for DI applicants to claim mental illness and musculoskeletal disorders such as back pain—both inherently subjective ailments. In 2009 these two conditions accounted for 22% and 31% of DI awards, respectively, about double their share in 1981. Even if an applicant does not meet DI’s basic medical requirements, he may eventually win payments for other reasons. DI’s rules, for example, allow an older worker unlikely to retrain to get benefits instead. Persistent applicants can seek the help of lawyers. Of those who appeal their case to a judge, almost 90% are successful.
Given DI’s design, it should come as little surprise that enrolment jumps during recessions. Till von Wachter of Columbia University offers three explanations. First, impaired workers may be among the first to be sacked. After they are laid off, they may find that they qualify for DI, as is the case for many of Mr Scully’s clients. Second, DI’s criteria explicitly include economic factors, such as the ability to retrain. Third, those desperate for cash may use more subjective criteria, such as mental illness and “bad back”, to try to win benefits. Many will fail, but they can appeal.
The Social Security Administration has tried to fix some of these problems. The “ticket to work” programme, for example, is intended to help DI and SSI beneficiaries get jobs. But as of November 2010, just 2.4% of those offered job help actually received it (let alone found work). A newer pilot also encourages those on the rolls to find jobs. Such programmes seemed doom to fail, trying to convince beneficiaries that they can find work after they have spent years arguing otherwise. More effective, says Richard Burkhauser of Cornell University and the conservative American Enterprise Institute, employers should be given incentives to accommodate workers at the onset of their disability. A separate plan by Messrs Autor and Duggan, for the centre-left Hamilton Project, calls for all employers to offer disability insurance.
A solution is needed, and soon. The DI trust fund is expected to dry up in 2018, 22 years before the trust fund for Social Security retirees does. Nevertheless, budget hawks have flown over the issue. Barack Obama’s deficit panel said proposals to reform DI would be “critical” but were “beyond the scope of this commission.” Last year Paul Ryan, a Republican congressman, presented a bold plan for reforming entitlements. Of DI, the plan said simply: “disability benefits will see no change.”
After the earthquake
The tension mounts
by H.T. and K.N.C. | TOKYO
THE risk of a nuclear accident at a huge power plant in disaster-strewn north-eastern Japan has risen for a second day on March 13th. This time it involves a type of fuel known as Mox (mixed-oxide) that is considered highly experimental. The government, which is under huge pressure to deal with the tragedy created by Friday’s earthquake, is also struggling to prevent panic over the potential meltdown of a second nuclear reactor. With what looked like tears in his eyes, Naoto Kan, the prime minister, said today that Japan was facing its worst crisis since the second world war and he urged its citizens to pull together.
As if that were not enough, Japan’s seismologists say there is a high risk of more big aftershocks in the coming days. In the areas worst hit by the quake, hundreds of thousands of people have been evacuated from their homes, and food and blankets are scare.
It is currently estimated that at least 2,000 are dead and missing after Friday’s earthquake unleashed a vicious tsunami that swept Japan’s northern Pacific coast. But that figure does not take into account 10,000 who the government acknowledged on March 13th are unaccounted for in one coastal area of Miyagi prefecture, called Minamisanriku. Aerial shots from television crews show a large community that existed there has now virtually disappeared under tidal water. Elsewhere in Miyagi and Iwate prefecture, hundreds more bodies have been dumped by the tsunami, news reports say, and some 450,000 people have been made homeless.
Mr Kan almost doubled the number of Special Defence Force troops he had ordered to the area, to 100,000. But relief efforts were hampered by destroyed roads and bridges, waterlogged airports and other disrupted lines of communication. An American aircraft carrier and emergency services from other countries joined the rescue effort, which underscores how bad the situation must be. The assumed death toll, which has already doubled in 24 hours, may rise much further yet. It would not be a surprise if it exceeds the 6,500 or so killed in the 1995 Kobe earthquake.
However hard it is to come to grips with the enormous devastation, another crisis is playing out in real time: the risk of a Three-Mile-Island-style radiation leakage at a nuclear-power plant in Fukushima prefecture, 250 miles north of Tokyo. Overnight, the cooling system at the third reactor at the Fukushima No. 1 nuclear power plant failed, and on March 13th Kyodo news agency cited the plant’s operator, the Tokyo Electric Power Company (Tepco), as saying that three metres of a Mox nuclear-fuel rod had been left above the water level. That raises the risk of a meltdown of the core reactor, which could lead to a nuclear catastrophe. Disconcertingly, Japanese anti-nuclear campaigners have fiercely opposed the introduction into Japan of Mox fuel, which is a mixture of plutonium oxide and uranium oxide, arguing, among other things, that plutonium is more unsafe than enriched uranium. The fuel was first used in the Fukushima plant last year. Five other reactors spread over two Fukushima plants have also experienced trouble with their cooling systems, and two (including the Mox one) have been doused with water—and possibly permanently crippled—to prevent overheating.
Yukio Edano, the government’s chief spokesman, said that it was possible the core reactor had been “deformed” by its exposure above water, but he denied that it was a meltdown. However, he said there were further complications. It was not clear whether the water was rising to cool the reactor, despite an injection of sea water. Pressure is also building up within the reactor, but the release valve is malfunctioning, he said. Given the potential build-up of hydrogen, he issued a warning that there could be another explosion of the type that destroyed the outer building of the plant’s first reactor on March 12th. But he said there was no danger to the thick, steel-and-reinforced-concrete container that surrounds the reactor, and he is downplaying the risk of a dangerous leak of radiation.
Mr Edano, who like Mr Kan is dressed in blue overalls to give the uniform-loving Japanese a sense of workmanship, is deftly trying to reduce the risk of panic around the country. His staff are telling foreign correspondents to reassure foreigners living in Japan that there is no need to flee Tokyo (the American ambassador has put out a similar message). The task is made harder by imprecise information on the levels of radiation that have leaked out and the dangers to the several dozen people near the Fukushima power plant who have so far been diagnosed as suffering from radiation.
Reportedly, levels of radiation have temporarily exceeded 1,000 micro sievert, which is twice the legal upper limit; but in many cases they have been little worse than an x-ray. The government insists the radiation comes from its release of pressure from the reactor container vessels, and is not dangerous to humans. It rejects assertion that the leaks are out of control. However, there is a general mistrust among many Japanese about the authorities’ willingness to admit to a serious radiation problem if it were to occur. It might, of course, accidentally play down the risk in its efforts to avoid panic. What’s more, Tepco, which provides most of the information on its Fukushima plant, has obfuscated shockingly in the past. Its reputation is unlikely to be burnished by the fact that residents of greater Tokyo and elsewhere, as well as businesses, were told to brace for extended power cuts in coming days. The government says power supply for such areas has fallen by a quarter, from 41m kilowatts per day to 31m, because of the quake-induced disruption.
On top of those concerns, the Meteorological Agency, which on March 13th upgraded its assessment of the size of Friday’s earthquake from 8.8 to 9.0, has also warned than in the next three days, there is a 70% chance of another big quake. The huge movement of sub-sea earth at 2.46pm on Friday led to a quake at three different epicentres, along a 500km stretch of sea. This was why the quakes were felt so broadly, and why there have been such frequent aftershocks.
A slew of businesses have decided to close, in part because of disrupted supply chains, but also because of the uncertainty over access to power. Toyota, Nissan, Honda and Suzuki will idle some or all factories. But the north-east is not Japan's industrial heartland, and factories in places like Kyoto, the centre of the country's high-end technology components, have not said they plan to close on Monday. Meanwhile, in a bid to shore up the financial system and ensure suitable liquidity, the Bank of Japan provided ¥55 billion in cash to 13 banks over the weekend, in case customers line up to get money on Monday morning. Though the economic cost of the crisis is hard to see—in large part because of uncertainty about the consequences of the overheating nuclear reactors—estimates place it above the ¥10 trillion (around $120 billion) damage of the Kobe earthquake in 1995.
Perhaps bracing for further weeks of uncertainty, Tokyo residents and others have been stocking up on petrol and provisions. Pot noodles are gone from the supermarket shelves, as are bread and tins of tuna. In a nation with the best lavatories in the world, another coveted item is the damp face towel, which apparently can be used as toilet tissue if water supply is interrupted for long periods. Such are the unsubstantiated rumours flying around Tokyo, anyway.
Quake Toll May Top 10,000 as Japan Fights Nuclear Accident
Japan worked to contain its worst nuclear accident in at least 33 years at a plant north of Tokyo as local media said the death toll from the nation’s biggest earthquake and ensuing tsunami may top 10,000.
Radiation levels around the Tokyo Electric Power Co. station in Fukushima, 135 miles north (217 kilometers) of the capital, rose after cooling systems at a second reactor failed, heightening concerns about a possible meltdown following an explosion there over the weekend. Water levels fell at a third reactor, raising the possibility of a hydrogen explosion there, Japan’s top government spokesman said yesterday.
The 8.9-magnitude temblor and subsequent tsunami may have killed 10,000 in Miyagi prefecture north of Tokyo, national broadcaster NHK reported, citing local police. The official toll reached 1,597, with 1,481 more missing and 1,683 injured, the National Police Agency said. More than 350,000 people are in emergency shelters.
“Our country faces its worst crisis since the end of the war 65 years ago,” an emotional Prime Minister Naoto Kan said at a nationally televised press conference in Tokyo yesterday. “I’m convinced that working together with all our might the Japanese people can overcome this.”
Japan’s Economic and Fiscal Policy Minister Kaoru Yosano said the impact of the earthquake and tsunami will hit the economy in its core. The government still has 1.3 trillion yen ($15.8 billion) in discretionary funds from this year’s budget that can be allocated for quake relief, he said at a press conference in Tokyo.
“This earthquake affected a wide area, and it’s likely that the economic impact will exceed the 20 trillion yen in damage sustained during the Kobe earthquake” of 1995, he said.
Kan is sending 100,000 Self-Defense Forces personnel into the devastated areas around Sendai, a city of 1 million people, for search-and-rescue efforts, Defense Minister Toshimi Kitazawa said. About 190 aircraft and 45 vessels were deployed to transport injured people and supplies, according to the Defense Ministry website. More than 50 countries pledged help.
The parliament suspended its current session, Kyodo News reported, citing lawmakers.
Japan is setting up power conservation measures, Chief Cabinet Secretary Yukio Edano said yesterday. Tokyo Electric will start power outages in parts of the greater Tokyo area today, according to a statement. The biggest supplier of electricity in the capital will divide its service area into five groups, each with three-hour outages.
Edano, in a predawn press conference in Tokyo today, urged Japanese citizens to “save electricity in the most maximum way possible, including large electricity users.” He said there were “no new developments” to report on the reactors themselves.
Seawater was pumped into three reactors at Tokyo Electric’s Daiichi plant in Fukushima prefecture to diminish the potential for a catastrophic release of radiation. Water levels fell at the No. 3 reactor and were subsequently raised, Edano said yesterday.
Should there be a hydrogen explosion, it won’t affect the reactor’s inside container, and there’s no health threat to people evacuated from the immediate area, Edano said.
The situation won’t likely lead to a meltdown, he said. The reactor was vented earlier to release pressurized gas after its cooling system failed, said Akitsuka Kobayashi, a spokesman for Tokyo Electric.
The “likelihood of success should be fairly high,” Dale Klein, a professor of nuclear engineering at the University of Texas at Austin and former chairman of the U.S. Nuclear Regulatory Commission, said of the seawater flooding.
“This should have been part of their overall strategy to keep the core covered and cooled.”
Winds took small radiation releases from the reactors out to sea away from the population and shouldn’t affect the U.S. west coast, the nuclear commission, which sent to reactor experts to Japan, said in a separate statement.
Inadequate cooling of the reactor core may lead to a meltdown, the most dangerous kind of nuclear power accident because of the threat of radiation releases, according to the NRC. The 1979 partial meltdown at the Three Mile Island reactor in Pennsylvania failed to breach the containment building, according to the commission.
Air Self-Defense Forces transported batteries, generators and pumps for cooling water to the plant, the Defense Ministry said. More than 100 military staff members were dispatched to provide containment assistance with special chemical units.
There are six reactors at the Dai-Ichi site operated by Asia’s biggest power company. Radiation at the plant exceeded Japanese limits after an explosion on March 12 destroyed the walls of a reactor building and injured four workers, said Naoyuki Matsumoto, a company spokesman.
A hydrogen leak caused the blast, which didn’t damage the steel chamber, Edano said. No damage to the building housing the reactor was reported, the company said.
Kan ordered Toshiba Corp. President Norio Sasaki to help with efforts to stop the radiation leaks, Kyodo News reported without citing anyone. The two met, said Takashi Mizuno, a spokesman at the maker of nuclear reactors. He said he couldn’t confirm what the two discussed.
After the earthquake, the Dai-Ichi station lost power needed to keep the reactor core cool. The government ordered people within 10 kilometers of the power plant to evacuate.
Preparing for Worst
“We’d like to keep the length of the evacuation at a minimum, but at the same time we must prepare for the worst,” Edano said. “At the moment, we’re doing what we can to prevent an increase in the threat and reduce that threat. It’s too early to say how long this evacuation will last.”
An estimated 131,700 people were evacuated in Fukushima, along with 108,900 in nearby prefectures, the national police said. A total of 111,428 people were in evacuation centers in Miyagi prefecture, where Sendai is located, the Asahi newspaper reported, citing local officials.
The U.S. Agency for International Development sent 150 search-and-rescue personnel with dogs that can find bodies in rubble. The U.K., Australia and South Korea also were sending teams with dogs.
The aircraft carrier USS Ronald Reagan was off the coast to support relief efforts, said Leslie Hull-Ryde, a U.S. Defense Department spokeswoman. The carrier will be joined by the USS Essex, and both vessels “can be used for helicopter operations and humanitarian assistance and disaster relief,” Defense Secretary Robert Gates said in Bahrain on March 12.
The U.S. State Department urged tourists and non-emergency American officials to defer travel to Japan for now and use social media such as Twitter or Facebook to contact family members where possible.
There have been hundreds of aftershocks since the quake, the U.S. Geological Survey said. They include a 6.3-magnitude temblor that occurred yesterday off the coast 115 kilometers southeast of Sendai, the USGS said.
More than a dozen greater than magnitude 6 have rocked the region, Dave Applegate, a senior adviser at USGS, told reporters on a conference call.
The quake was the world’s strongest since a December 2004 temblor in Indonesia that left about 220,000 people dead or missing in 12 countries around the Indian Ocean. It was the biggest within the boundaries of the North American and Pacific tectonic plates in 1,200 years, Applegate said.
The economic impact from the disaster will be “considerable,” Edano said. Japan aims to compile a package to fund the rebuilding effort, a step that may worsen the challenge of reining in the world’s biggest public debt. It will be “difficult” to compile the extra spending package before March 31, Finance Minister Yoshihiko Noda said.
The Bank of Japan, the central bank, set up an emergency task force and said yesterday that it would continue to supply liquidity to the financial market to maintain stability. It supplied 55 billion yen ($672 million) to 13 financial institutions this weekend.
Japan’s financial markets will operate “as usual” today and will be monitored for improprieties, the Financial Services Agency said. Authorities will seek to prevent transactions that exploit the disaster and strictly implement a ban on naked short selling, Financial Services Minister Shozaburo Jimi said in a statement. Kan, speaking to reporters in Tokyo, pledged bold action against any speculative trading.
Some of the nation’s largest manufacturers -- including Sony Corp., Honda Motor Co., Nissan Motor Co. and beermaker Sapporo Holdings Ltd. -- shut down facilities in northern Japan.
Sony plans to halt output at eight factories and said its plant in Miyagi that makes Blu-ray discs, magnetic tapes and optical discs was flooded. Toshiba closed a plant that makes sensors for the cameras in its mobile phones.
Toyota, the world’s biggest carmaker, will suspend production at all 12 factories today to confirm the safety of its employees. Nippon Steel Corp. suspended operations at its Kamaishi plant in Iwate prefecture because of flooding.
Refiner JX Nippon Oil & Energy Corp. also shut operations.
Tokyo Disney Resort will be closed until at least March 21, depending on the state of transportation and infrastructure around the park, operator Oriental Land Co. said. No major damage to the park’s facilities was reported, it said.
Ring of Fire
Japan lies on the so-called “Ring of Fire,” an arc of volcanoes and fault lines surrounding the Pacific Basin. A 6.9- magnitude earthquake in Kobe, western Japan, killed more than 6,000 people in 1995, while the 7.9-magnitude Great Kanto Quake of 1923 destroyed 576,262 structures and killed an estimated 140,000.
Within an hour of the March 11 quake, a 7-meter-high tsunami engulfed towns on the northern coast, washing away buildings, vehicles and boats.
The wall of water reached as far as 20 kilometers inland, according to NHK. It swamped an area from Erimo in the northern island of Hokkaido to Oarai, Fukushima, about 670 kilometers to the south, according to Japan’s meteorological agency.
The number of confirmed dead “will be increasing very quickly,” Nori Shikata, a spokesman for the prime minister, said in a telephone interview on ABC’s “This Week,” providing no estimate.
Bank of Japan Readies 'Massive' Liquidity in Response to Quake
The Bank of Japan may today inject more short-term cash into the banking system after the nation’s most powerful earthquake on record, while keeping its asset- purchase plans unchanged as officials gauge the longer-term effect on the world’s third-largest economy.
Governor Masaaki Shirakawa told reporters late yesterday he’s ready to unleash “massive” liquidity starting this morning in Tokyo, as the BOJ seeks to assure financial stability.
Economists said officials will likely decide to keep longer-term credit programs at a total of 35 trillion yen ($428 billion) when they meet today at 1 p.m. in Tokyo. The bank’s main interest rate has already been cut to almost zero as policy makers last year sought to end the nation’s deflation.
“Monetary policy will be unchanged, but they will probably pledge to provide ample liquidity,” said Takehiro Sato, chief Japan economist at Morgan Stanley MUFG Securities Co. in Tokyo. Policy makers may also “establish an emergency lending facility to help financial institutions in Tohoku,” the northern region most damaged by the catastrophe, he said.
Shirakawa and his board could opt to accelerate asset purchases, including government bonds and exchange-traded funds, within the existing credit programs, particularly if the yen climbs and stocks tumble, said Masaaki Kanno, chief Japan economist at JPMorgan Chase & Co. in Tokyo, who used to work at the central bank.
The economic hit from the March 11 quake will depend on how long it shuts down factories and the distribution of goods and services, with the potential meltdown at a nuclear power facility clouding the outlook. For now, the central bank is likely to ensure lenders have enough cash to settle transactions, and aim any additional steps at providing credit in the areas of northeastern Japan devastated by the temblor, analysts said.
Japan’s currency rose 1.4 percent to 81.84 per dollar March 11 amid prospects for Japanese investors to repatriate assets, bringing its gain in the past year to 10 percent. The government may order the BOJ to sell yen if it soars, Mansoor Mohi-uddin, head of global currency strategy at UBS AG in Singapore, wrote in a note. The Nikkei 225 (NKY) Stock Average fell 1.7 percent by the close, 14 minutes after the 8.9-magnitude shock at 2:46 p.m.
Prime Minister Naoto Kan is also preparing a fiscal response, deploying about 200 billion yen left over from the budget for the fiscal year ending March 31 and planning a supplementary budget. Finance Minister Yoshihiko Noda said it would take beyond the end of this month to compile the additional package.
Opposition leader Sadakazu Tanigaki told reporters in Tokyo yesterday he proposed to Kan a temporary tax to help fund the relief effort, and Chief Cabinet Secretary Yukio Edano said later that such a step cannot be ruled out.
The central bank set up a task force after the temblor, and pledged in a statement March 11 to ensure financial stability and said it will do everything it can to provide ample liquidity. The BOJ extended 55 billion yen to lenders over the past two days to ensure cash was on hand for withdrawals by survivors.
The money went to 13 financial institutions operating outside regular business hours in disaster-struck areas, the bank said in a statement yesterday, adding that it was checking on the scale of damage to lenders.
The quake struck hardest in Tohoku, the northern region of the main island of Honshu that accounts for about 8 percent of Japan’s gross domestic product.
Companies from Sony Corp. to Toyota Motor Corp. halted production after the quake struck 2:46 p.m. local time 130 kilometers (81 miles) off the coast of Sendai, north of Tokyo. Nissan Motor Co. said 2,300 new vehicles were damaged by tsunami surges. Tokyo Electric Power Co. yesterday was battling to avoid a meltdown at its Fukushima nuclear plant, and warned it will today begin rolling, periodic blackouts of Tokyo.
Declines in stocks may shake consumer confidence, which slid to a 10-month low in December as the government started to unwind economic stimulus measures. The economy had contracted in the fourth quarter as consumer spending and exports slumped, a decline economists had said would be temporary as a rebound in global growth fuels overseas demand.
“The earthquake has increased the risk the economy won’t be able to emerge from its lull, which many believed would happen this quarter” said Takahide Kiuchi, chief economist at Nomura Securities Co. in Tokyo. He added that the government is likely to spend about 5 trillion yen for recovery efforts.
Policy makers may establish a lending program to help financial institutions in the Tohoku area, said Hiromichi Shirakawa, chief Japan economist at Credit Suisse in Tokyo and a former Bank of Japan official.
Today’s decision was originally scheduled for tomorrow following a two-day meeting; the BOJ said it cut short the gathering to accelerate its response. Shirakawa plans a press conference after the announcement.
“The BOJ is very likely to focus on cautious operations aimed at preventing any problems in fund transactions between financial institutions,” Goldman Sachs Group Inc. economists including Tokyo-based Chiwoong Lee wrote in a research note. “We also expect it to devise new measures in the context of its current comprehensive monetary policy to support the rebuilding of affected areas and buoy the entire Japanese economy based on continuing assessments of the impact.”
In the days following the 1995 Kobe earthquake, the BOJ boosted liquidity injections to the money market and pumped 500 billion yen in excess funds to restrain the uncollateralized overnight lending rate, which was around 2 percent. It lowered its benchmark official discount rate in April and September, bringing it to 0.5 percent, a record low at the time, as the economy deteriorated and the yen rose. The currency surged about 21 percent in the three months after the quake.
In the Kobe case, demand for cash in the money market surged because commercial lenders had to meet withdrawals from businesses and individuals who wanted cash on hand.
Lawmakers drafted a 2.7 trillion yen supplementary budget in May 1995 to help with reconstruction efforts in Kobe, where the disaster killed more than 6,000 people. The March 11 earthquake and the tsunami it produced might have killed more than 10,000, national broadcaster NHK reported, citing Miyagi prefecture police. The official toll reached 977, with 739 more missing and 1,683 injured as of late yesterday.
“A large part of the reconstruction costs will probably have to be met by local authorities and ultimately by central government, which is already struggling to bring public debt under control,” said Julian Jessop, chief international economist at Capital Economics Ltd. in London. “The greater the social and economic damage, the larger the threat to the government’s ability and willingness to ward off a fiscal crisis.”
Noda said the nation’s growing debt load would not impede its rescue effort. Standard and Poor’s downgraded Japan’s credit rating to AA- in January and Moody’s Investors Service lowered its outlook on the nation’s Aa2 grade to negative from stable last month.
“We are going to do everything we can” Noda told reporters in Tokyo on March 11 after the quake. “The fiscal situation can’t be a constraint to addressing this natural disaster.”
Stepping up policy easing efforts may help accelerate the end of deflation in Japan, according to Edward Lincoln, a New York University professor who directs the school’s Center for Japan-U.S. Business and Economic Studies. Price pressures may already emerge as a result of a jump in demand for goods after the quake.
“If the Bank of Japan takes this opportunity to follow a somewhat more expansionary monetary policy, that would also underwrite a shift toward inflation rather than deflation,” said Lincoln, who was an adviser to then-U.S. Ambassador to Japan Walter Mondale in the Clinton administration. “There’s no guarantee.”