Prime Minister Naoto Kan mobilized Japan's Self-Defense Forces and the central bank pledged to ensure financial stability after a magnitude 8.9 earthquake struck off the coast of Sendai, a city of 1 million, causing damage across the east coast of Japan.
“I call on citizens to act calmly,” Kan told reporters in Tokyo after convening his emergency disaster response team. “The Self-Defense Forces are already mobilized in various places. The government is making its utmost effort to minimize the damage,” he said, saying later in a news conference that the impact was widespread.
Oil tumbled as Japanese refiners shut plants after the world's biggest earthquake in more than six years. Stocks fell, with Munich Re and Swiss Reinsurance Co. leading declines by insurance companies in European trading.
Japan's central bank set up an emergency task force and said it will do everything it can to provide ample liquidity. The BOJ, which has already cut its benchmark rate to zero in an effort to end deflation, had last month said the economy was poised to recover from a contraction in the fourth quarter.
‘Horrific Events'
“It's early days but the horrific events in Japan bear very close watching from a financial perspective, given the bloated problems in Japan's public sector,” Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London, said in an e-mailed note. Kan, 64, had been in the midst of a political battle to approve financing for his budget as credit- rating companies warn the nation's government to rein in the world's biggest public debt.
The Ministry of Finance said it's too soon to gauge the economic impact of the temblor.
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Japan's stocks slid 1.7 percent in Tokyo today as the earthquake struck less than half an hour before the market closed. The yen advanced 0.2 percent to 82.77 per dollar as of 5:07 p.m. in Tokyo. The MSCI Asia Pacific Index dropped 1.4 percent as of 5:22 p.m., with losses accelerating after the quake. Futures on the Euro Stoxx 50 Index fell 1 percent.
The central bank said in a statement that its settlement system was working and that it was able to settle all accounts today without disruption.
Televised footage showed a tsunami striking northeast Japan. Outside of Tokyo, Narita airport, the area's main international gateway, closed, Kyodo News reported. Haneda, the main domestic airport, was reopened after closing earlier, according to Kyodo.
‘Major Damage'
“Major damage occurred in the Tohoku area,” Kan said in a nationally televised address, referring to the northern region of Honshu, Japan's biggest island. “We will work with all our might to ensure people's safety and minimize the damage. I ask everyone to pay attention to TV and radio reports and act calmly. Some nuclear power plants automatically shut down, but so far we haven't confirmed any leakage of radioactive material.”
The Tohoku region accounts for about 8 percent of Japan's gross domestic product, according to Richard Jerram, Singapore- based head of Asian economics at Macquarie Securities Ltd. Miyagi, the prefecture that includes Sendai, makes up 1.7 percent of Japan's population and its GDP, the bank estimates.
The quake struck at 2:46 p.m. local time 130 kilometers (81 miles) off the coast of Sendai, north of Tokyo, at a depth of 24 kilometers, the U.S. Geological Service said. It was followed by a 7.1-magnitude aftershock at 4:25 p.m., the service said. Aftershocks continued to affect office buildings in Tokyo as recently as 5:21 p.m. local time.
Deaths, Fire
Eighteen deaths were reported in Tohoku and Kanto, the region in which Tokyo is located, as of 5 p.m., broadcaster NHK reported. Explosions hit a Cosmo Oil Co. refinery in Tokyo.
“The Tohoku region is one of the major production areas of cars and other products in Japan, so the quake may affect economic activity mainly through this sector,” said Tohru Nishihama, economist at Dai-ichi Life Research Institute Inc. in Tokyo. “In addition, it's possible to affect food prices as agriculture is another major industry in the region.”
Toyota Motor Corp. said it and its affiliates closed three factories, adding that locations outside of northern Japan were operating normally. Nissan Motor Co. said it extinguished two small fires at factories and Kyodo reported that the Yokohama- based company halted production at four factories.
Nippon Paper Group Inc. suspended three Japan plants after the shock, Kyodo reported. All Nippon Airways Co. said 32,700 people were affected by flight cancellations.
Political Controversy
For Kan, managing the aftermath of the disaster may deflect immediate public attention from his becoming embroiled in a political-donation controversy. Earlier today, he told lawmakers today he “had no idea” a political contributor to his office wasn't a Japanese citizen, violating campaign rules. The Asahi newspaper reported Kan received 1.04 million yen ($12,500) from a South Korean resident. A similar charge prompted the foreign minister to resign March 6.
With opposition parties already calling for Kan to step down and refusing to pass bills authorizing sales of deficit- financing bonds, the tumult had risked prolonged paralysis in the Diet. Political failure to set a path for reining in the world's largest public debt has spurred credit-rating firms to lower, or put on notice for a cut, Japan's sovereign grade.
Debt Burden
The head of the Liberal Democratic Party, the biggest opposition group, said it would cooperate with the government to approve extra spending to cope with the disaster.
“We will probably need a supplementary budget to work on this,” LDP leader Sadakazu Tanigaki told reporters after Kan convened a meeting of party leaders. “We will cooperate with all our might.”
Boosting fiscal spending on any reconstruction effort in the wake of the temblor would risk adding to the nation's borrowing without cuts elsewhere or an increase in taxes. Government debt is set to reach 210 percent of GDP in 2012, the highest among countries tracked by the Organization for Economic Cooperation and Development, compared with an estimated 101 percent for the U.S.
Today's shock evoked memories of the Great Hanshin Earthquake that hit the port city of Kobe in January 1995 that killed 6,400 people. Jerram at Macquarie Securities said the impact on the economy is likely to be less than that disaster, which itself had limited lasting effect.
“Miyagi is a lot smaller part of the economy than Kobe, so we would expect the damage to be much less serious on the economy,” Jerram said. “The early indications are that it's not probably going to be all that destructive from an economic point of view.”
--Bloomberg News
