Japan pumped more funds into its shaky financial system yesterday after stocks fell and the yen surged to a record high, which Tokyo blamed on currency speculators following a huge earthquake.
The central bank injected another six trillion yen ($76 billion), increasing to 34 trillion yen the total amount of funds added to money markets since Monday to soothe jitters after last week’s devastating quake and tsunami.
Finance chiefs from the G7 rich nations are set to hold telephone talks on the crisis today, as market talk grew that Japan might be preparing measures to rein in the soaring yen.
“There is intensifying market speculation the Bank of Japan will soon intervene to cap support of the yen,” said NAB Capital analyst David de Garis.
Dealers said some market players appeared to be buying the yen on expectations that Japanese companies will repatriate funds to pay for reconstruction.
Such speculation is “totally groundless,” said Economy Minister Kaoru Yosano, adding that yen’s surge was “extremely speculative”.
Investors welcomed news that army helicopters dumped water on the crisis-hit Fukushima nuclear power plant in a bid to douse radioactive fuel rods as part of efforts to prevent a release of radiation.
Stocks recovered some of their early losses to end down 1.44 per cent, having sunk more than four per cent in early deals.
Tokyo’s Nikkei share index suffered the biggest two-day sell-off for 24 years on Monday and Tuesday, plunging 16 per cent, amid the world’s worst nuclear crisis since Chernobyl in Ukraine in 1986.
The yen struck a record high of 76.52 per dollar in early Asian trade, but later pulled backed, easing worries about the impact of a strong currency on exports. The yen was quoted at 78.34 against the greenback in European trade.
Japanese officials declined to comment on the possibility of intervention, but their silence did nothing to dampen market speculation.
“Given the extraordinary circumstances in Japan, there should be no real opposition to foreign exchange intervention from key global partners, including the US and the eurozone,” Nomura Securities analysts wrote in a report.
All eyes were on the Fukushima plant northeast of Tokyo which has suffered a series of blasts and fires after it was rocked by the record 9.0 magnitude quake last Friday that triggered a 10-metre tsunami.
Japan relies on its nuclear plants to provide around 30 per cent of its energy needs and shutdowns in the wake of the massive earthquake have led to rolling outages that have forced companies to suspend production lines.
The government warned of a threat of major power blackouts unless electricity use is reduced.
“The demand-supply balance is already very tight,” Economy, Trade and Industry Minister Banri Kaieda said in a statement.
“If this situation continues, demand will far exceed supply today from the evening to night when daily power demand peaks, and unpredictable major blackouts are feared,” he added.
Damage from the earthquake and tsunami could potentially amount to tens of trillions of yen (hundreds of billions of dollars) and trigger a sharp fall in output at factories across the world’s third largest economy, analysts say.
Risk assessment firm EQECAT said Wednesday that the twin disaster had resulted in estimated insured losses of between $12 billion and $25 billion.
But history suggests that industrial production could quickly rebound as it did after a massive quake in 1995, which levelled much of the Japanese port city of Kobe, while reconstruction spending should also help to foster a recovery.