Bank of Japan injects record $182 bn on quake fears – ET

Posted on March 14, 2011 by

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Japan’s central bank injected a record 15 trillion yen ($182 billion) into the short-term money market Monday, in an attempt to build confidence after a devastating earthquake and tsunami.

The fund provision is the largest ever in a single operation by the Bank of Japan as it looks to support the world’s third-largest economy battered by the impact of a monster 8.9 magnitude earthquake that struck on Friday.

“We will take every possible measure, including providing liquidity, to ensure the stability of financial markets and smooth settlements (of business deals),” a bank spokesman said. The bank will provide an additional 3 trillion yen Wednesday.

The priority of the central bank is to ensure financial institutions in disaster-hit regions do not run out of funds. Over the weekend it provided them with 55 billion yen to ease the pressure.

Monday’s move was the first time since May, when European sovereign-debt fears pushed up the yen steeply and weighed on Tokyo shares, that the central bank injected same-day funds to boost confidence.

The BoJ said it stands by to do whatever necessary to keep stability in the markets and financial system.

Its two-day policy board meeting previously scheduled for Monday and Tuesday would now be cut short and conclude on Monday, seen as a sign it may quickly implement further measures.

Prime Minister Naoto Kan has warned that Japan is ready to take firm action against speculative trade, signalling his authorities may intervene in currency markets to bolster the yen if needed.

The yen briefly touched a four-month high before easing against the dollar on the massive liquidity injection Monday as markets responded to the natural disaster.

It briefly surged to 80.60 against the dollar, the highest since November 9, before retreating to 82.15 and held relatively steady despite a fresh explosion at the Fukushima nuclear plant Monday.

The government expects a “considerable” economic impact from the huge earthquake and devastating tsunami that plunged the nation into what Kan called its worst crisis since the Second World War.

It faces a huge challenge in financing the mammoth rebuilding task that will be required in the aftermath of a disaster whose economic impact is widely expected to be at least as bad as that from the 1995 Kobe earthquake.

Japan’s public debt is the industrialised world’s biggest at around 200 percent of GDP, and the nation’s credit rating was recently downgraded on concerns that not enough is being done to address it.

Yet the disaster is seen to place yet more pressure on the debt-pile.

Stocks saw a post-quake sell-off with carmakers, banks and electronics firms taking a hit on fears for the economy as power shortages prompted rolling blackouts and plants remained closed in quake hit areas, hitting production.

Engineers are battling against the risk of meltdown at a stricken nuclear power station, while the death toll from the quake and the resulting wall of water that tore into parts of the northeastern seaboard is expected to surpass 10,000.

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