By Associated Press - Sunday, March 13, 2011

TOKYO | Japan’s central bank injected a record 7 trillion yen ($85.5 billion) into money markets, and the Tokyo stock market nosedived Monday on the first business day since an earthquake and tsunami devastated the country’s northeast and raised dire worries about the economy.

The benchmark Nikkei 225 stock average fell 487 points, or 4.8 percent, to 9,767.18. Worries about the economic impact of the disaster triggered a broad sell-off that hit all sectors.

The Bank of Japan moved quickly to try to keep financial markets stable. By flooding the banking system with cash, it hopes banks will continue lending money and meet the likely surge in demand for post-earthquake funds.

Immediately after the earthquake, the central bank pledged to “do its utmost,” including providing liquidity. A one-day policy meeting was scheduled for later Monday.

A U.S. Treasury spokesman told Reuters news agency that Washington was watching Japan’s markets closely, but has been assured by Japanese officials that the transaction and settlement systems were operating normally.

Preliminary estimates put repair costs from the earthquake and tsunami in the tens of billions of dollars — a huge blow for an economy that lost its place as the world’s No. 2 to China last year, and was already in a fragile state. Japan’s economy has been ailing for 20 years, barely managing to eke out weak growth between slowdowns, saddled by a massive public debt that, at 200 percent of gross domestic product, is the biggest among industrialized nations.

The nation’s big-three automakers, meanwhile, said they would halt all production in Japan starting Monday owing to widespread damage to both suppliers and transport networks in the region.

The Bank of Japan pledged to pump more money into financial markets when it holds a policy board meeting Monday. There is not much left for the central bank to do regarding interest rates, which are already close to zero. Tens of billions of dollars are expected to be needed to rebuild homes, roads and other infrastructure.

“The impact on Japan’s economy will be devastating,” said Sheila Smith, senior fellow for Japan studies at the Council on Foreign Relations, a New York-based think tank. “The long-term economic blow to a country already struggling to lower its budget deficit … will be significant.”

In an unprecedented move for tech-savvy Japan in recent decades, Tokyo Electric Power Co. rolled out blackouts of three hours per day to parts of suburban Tokyo and other cities, starting Monday.

And Tokyo trains, which usually run like clockwork but stopped for nearly the entire day after the quake, will be on a reduced schedule starting Monday, to conserve electricity.

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