Bank of Japan Unleashes Record Funds

March 14, 2011
Bank will pump in $184 billion

Japanese stocks tumbled on March 14 and the central bank pumped a record amount of cash in a bid to soothe money markets shaken by Japan's biggest ever earthquake, a devastating tsunami and a nuclear emergency.

Nuclear plant operator TEPCO dived almost 24% on fears of a meltdown at one of its reactors while producers such as Sony and Toyota tumbled as power shortages prompted blackouts and factories remained closed, hurting production.

The Bank of Japan said it would pump a record 15 trillion yen (US$184 billion) to help stabilize the short term-money market, making good on its pledge that it would unleash "massive" funds following the quake. An additional 6.8 trillion yen will be deployed on March 14 and 15, including 3 trillion in bond purchases, bringing the total available to 21.8 trillion yen.

The BoJ will also double a five trillion yen asset purchase scheme to help buffer the economy from Japan's strongest ever quake, and left its key rate left at between zero and 0.1%.

But the move provided little relief for unnerved traders, with another explosion at Tokyo Electric Power's (TEPCO) Fukushima Number One nuclear plant helping push the index lower as economists eyed the impact on Japan's growth.

"Shares will be dragged down with Japan's March GDP figures expected to be sharply lower on a slump in economic activity, delays in distribution of goods on power cuts and loss of human lives," Shoji Hirakawa of UBS said.

Tokyo stocks plunged 6.18% on March 14 with the key Nikkei index tumbling below 10,000 to 9,620.49 as top Japanese firms suspended operations.

Automakers Toyota, Nissan and Honda have announced the suspension of production in Japan. At one point Toyota -- shutting production until at leastMarch 16 -- and Nissan slumped more than 10%.

Toshiba, which manufactures nuclear reactors, fell by its 16% daily limit to 411 yen. Sony, which has also shuttered plants, dived 9.12%t to 2,550.

TEPCO slumped 23.57% to 1,621 yen, following an explosion on March 14 in the building around the number three reactor at the troubled Fukushima plant. Authorities put into action plans for rolling power cuts in areas served by TEPCO to make up for the loss of power from crippled nuclear plants.

The yen briefly touched a four-month high before easing against the dollar on the massive liquidity injection. It surged to 80.60 against the greenback, the highest since November 9, and hovered around 82 after the fresh explosion at Fukushima as engineers battle to avoid a meltdown.

The government expects a "considerable" economic impact from the huge earthquake and devastating tsunami that plunged the nation into what Prime Minister Naoto Kan called its worst crisis since the Second World War.

The priority of the central bank is to ensure financial institutions in disaster-hit regions do not run out of funds. Over the weekend it provided them with 55 billion yen to ease the pressure before Monday's fresh fund move.

Monday's injection was the BoJ's first since European sovereign-debt fears pushed up the yen steeply and weighed on Tokyo shares, when it injected same-day funds to boost confidence.

Economists say it is still too early to assess the cost of the destruction from the record 8.9-magnitude quake and the 10-metre wall of water that laid waste to swathes of the northeastern coast and triggered an atomic emergency.

But Japan faces a huge challenge in financing it with public debt already the industrialized world's biggest at around 200% of GDP. The nation's credit rating was recently downgraded on concerns that not enough is being done to address it.

Copyright Agence France-Presse, 2011

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