Ten years ago I was staying in the Palace Hotel in Tokyo. Just after I climbed into bed one night the bloody thing began to shake........... in fact the building began to shake. Not one to hang around when faced with becoming a statistic I grabbed a dressing gown and sprinted down the fire exit for five floors. Feeling pleased, if breathless, I burst onto the street to find....... I was the only evacuee. It was a mild tremor, the sort of thing the Japanese experience every day. This morning, they got the real thing, all 8.9 of it.
Equities are continuing their slide from yesterday, the move gaining momentum in the aftermath of the powerful 8.9 magnitude earthquake which struck 130 kilometres east of the coast of northeastern Japan at approximately 2:46pm Tokyo Time today. Here are a few thoughts from the trading room.
Tsunami waves, up to four metres high, swept across farm lands and buildings along Japan’s northeastern coast. Tokyo train systems and bullet train Shinkansen services were immediately suspended, while parts of the highway leading up to Sendai, the city closest to the epicentre, suffered damage, as reported. Two nuclear power plants on the coast in Fukushima Prefecture were shut down as protective sequencings kicked in. 4 million households in Tokyo are without power as of late Friday. Cosmo Oil's Chiba refinery reported major fire outbreak. Fires were reported at 48 locations in Northeastern Japan.
Prime Minister Naoto Kan and Cabinet ministers gathered for emergency meeting at the Prime Minister's Office, setting up a situation room to gather information on damage and prepare for potential further tsunami. A disaster control team was set up by the Bank of Japan, headed by Governor Shirakawa, and pledging to supply the market with ample liquidity and ensure financial market stability.
The JPY initially weakened on the break of the news, reaching as high as 83.30 from 82.80, but later retraced the entire knee-jerk sell off as investors increasingly believe the serious damage to infrastructures will require repatriation of the Yen for massive rebuilding efforts, driving USD/JPY lower. (This happened after the Kobe earthquake in 1995).
Reflecting on the recent New Zealand earthquake that caused severe casualties in Christchurch, the total loss to lives and updates on actual damage to Japan's major infrastructures are key news to watch out for over the weekend.
The earthquake is of a similar magnitude to the Great Kanto earthquake of 1923, which killed between 100,000 and 142,000.
At this point, enquiring minds will be musing over the following,
* How robust is the integrity of the two nuclear power stations that have had some cooling issues this morning although the systems are reportedly back on line.
* Is it possible that this is a pre shock to a bigger event?
* How much damage will the Tsunami cause as it heads across the Pacific.
* How will investment asset classes be impacted if the Japanese liquidate to repatriate assets.
* Just how bad is the impact on Japan itself; the news channels are not yet reflecting the full tragedy because they simply don't yet know.
* One day, it will be California's turn and then equities really will get malleted.
Were the sardines telling us something....?