March 16th, 2011
03:04 AM GMT
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(CNN) – Japan's benchmark Nikkei 225 index rallied some 5% in the first 15 minutes of trade on Wednesday, bouncing off a 10.5% loss in previous session.  Market watchers however warn that the worst may not yet be over given the various challenges Japan faces after the strongest Earthquake ever to hit the country.

"We're hostage to the next headline,” said Richard Yetsenga, HSBC's Asia currency strategist.

Tuesday’s sell off – lead by foreign investors dumping Japanese equities, market watchers say – was described as a panic reaction to the escalating crisis in Japan and the fear problems at the Fukushima Daiichi Nuclear Plant could impact human health and extend evacuation.

Right now, equity players are watching currency players and vice versa.  The Bank of Japan, in effort to shore up confidence in the Japanese economy, has injected large amounts of cash into the system to keep money moving and make it easy for the economy to function.

In the first hour of trade on Wednesday the central bank injected another $43.2 billion or 3.5 trillion yen into the system. That raises the total of same day cash Tokyo has injected to support its economy to $325 billion in the past three days.

There's talk the BOJ is prepared to do whatever it takes to stabilize the currency – indeed, we saw a weakening of the Yen within minutes of the central bank's move and the opening of the Tokyo trading day.

Stability is key for investor confidence, analysts say, and the BOJ and government moves are a positive signal.  That said, measures of volatility have jumped – the VIX, the so-called ‘fear index,’ jumped 15% during Tuesday’s trade. That's a sign that there are still many unknowns.

There is a huge relief effort already taking place but rolling black outs could impact on productivity in the medium term.  One note from BNP Paribas notes the rolling blackouts by Tokyo Electric Power (the company that runs the Fukashima Daiichi plant) will affect nine prefectures of the north, including Tokyo.  These nine prefectures account for about 40% of Japan's GDP.

So as the drama unfolds, the potential economic impact of the disaster remains unknown.

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Filed under: Japan

soundoff (2 Responses)
  1. divided

    Bankrupt Japan could be good test headline.

    March 16, 2011 at 4:33 am |
  2. divided

    Get ready they about to tell you through the emperor one reactor is in full meltdown. The people that control the media are now preparing people for chernobyl type events and probably on much larger scale. They are waiting for it to melt now and they prolly don't know how many will either. Its probably as bad as it could have got from an early view point. Now it seems experts wont comment. Why? Because they know that they are just holding it off by the skin of there teeth. All they are doing is trying to buy more time and hope it fixes itself thats the truth. Surely they'll admit to that. But no they'll treat it like a test as to how long they can stabiize them for. The worrying thing is there preparing odd decision like helicoptors with buckets of water. I think this is going to go just bit longer than chernobyl and only when it goes bang or melts then you'll see the real thing there planning for. If it doesn't then its not like chernobyl it earns second place. So its somewhere worse than 3 mile island but before chernobyl. I think its probably going to get worse by 1 day or say based on events so far. If i were an expert I wouldn't want to be anywhere near it either thats another reason why experts are devided. There still assessing whether its safe enough to get close enough however that could take longer and by that time it might explode or melt. I think the experts prefer it to melt. And maybe thats what they are trying to achieve just dun let it explode

    March 16, 2011 at 8:33 am |

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