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Quake impact seen deep and long, recession possible
Japan's already weak economy faces deeper damage than initially thought from the triple blow of a devastating earthquake, tsunami and nuclear disaster, and risks prolonging its sluggish recovery.

At worst, forecasts from some economists suggest the world's third largest economy is in danger of slipping back into recession.

The hit to growth from Japan's worst crisis since World War 2 is likely to exceed that of the 1995 Kobe earthquake, when industrial output fell but overall output remained strong, analysts said -- a downgrade from their first estimates after Japan was hit on Friday by its largest earthquake on record.

This time the yen is stronger, hampering exports, and Japan's debts -- twice the size of the $5 trillion economy -- are much bigger. It also faces a major power problem.

The yen bounced back from an initial dip to rise on Friday after the earthquake, a move reflecting some expectations that Japanese investors could bring back funds from their hefty foreign investments as happened in the weeks after the 1995 Kobe earthquake.

Rolling power blackouts begin on Monday, which will lower production. Car and semiconductor factories and oil refineries in the north-east region are closed. And Japan may raise taxes to pay for relief work, reducing consumer spending.

"We now expect the Japanese economy to take longer than we expected to exit its current soft patch owing to the earthquake and tsunami," Nomura analysts Takahide Kiuchi and Okazaki Kohei wrote in a note to clients.

Nomura expects the economy, which shrank late last year, won't shake off its lull until the third or fourth quarter.

In contrast, some analysts initially had seen a return to growth in the April to June period.

Nissan Motor halted output at all its four domestic assembly factories and said restarting them could depend on whether it can get parts, one of many companies unsure of how quickly they can get their plants back up and running.

Power supply also is critical factor in estimating the loss to the nation's productive capacity. Nuclear power plants are offline, and officials are grappling to control the damage and radiation leakage.

Ward McCarthy, chief economist at Jefferies in New York, called this development troubling. "It just increases uncertainty at a time when uncertainty is already high," he said.

"If power production output is damaged in a sustainable fashion, that could have a durable impact," said Michala Marcussen, head of global economics at Societe Generale.

Export-dependent Japan already faced vulnerabilities. The European debt crisis, an oil price spike and a still fragile recovery in the United States have all posed challenges.

Add to that a potential drop in Japanese consumption, said Brendan Brown, head of economic research at Mitsubishi UFJ. Consumers will be "under influence of squeezed incomes and trauma," he said.
http://www.reuters.com/article/2011/03/14/us-japan-economy-analysis-idUSTRE72D12620110314

Yen hits four-month high after Japan quake
The yen briefly touched a four-month high against the dollar in early Asian trade on Monday with currency markets responding to Japan's devastating earthquake and tsunami.

As of 8:40 am (2340 GMT Sunday), the dollar changed hands at 81.25 yen against 81.91 in New York late Friday. The euro traded at 113.53 yen, compared with 113.89 in New York.

At one point, the yen briefly surged to 80.60 against the dollar, the highest since November 9.
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Market participants are now watching for any rise to 80.00 yen versus the dollar, dealers said, which could trigger a Japanese yen-buying intervention to prevent the 1995 post-war high of 79.75 yen to the dollar.

"Markets will be very wary of taking the USD/JPY below those levels for fear of intervention," Bank of New Zealand FX strategist Mike Jones said.

On Sunday, Prime Minister Naoto Kan 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 Japanese unit fell sharply following Friday's quake before being bought heavily on the expectation of future yen demand from firms for the massive rebuilding task ahead for the devastated country.

"It is necessary to show our stance of fighting against speculative moves at any cost," Kan told a meeting of his key economic ministers.

In September, the Kan administration carried out the first yen-selling intervention by authorities for six years as the currency approached the historic high.

A strong yen makes Japan's growth-driving exports more expensive and erodes companies' overseas profits when repatriated, with many companies considering sending more production overseas as a result.

Financial services minister Shozaburo Jimi also warned on Sunday that the government would strengthen its supervision of the market against illegal trading in connection with possible confusion related to the disaster.

The Bank of Japan plans to pump "massive" funds into markets on Monday in a bid to help them stabilise following the catastrophic 8.9 magnitude earthquake and the devastating 10 metre wall of water it triggered.

The BoJ said it would do its "utmost" to provide market liquidity and ensure the stability of financial markets on Friday after the quake struck.
http://news.smh.com.au/breaking-news-world/yen-hits-fourmonth-high-after-japan-quake-20110314-1btef.html

The U.S. dollar rebounded from near record lows against the yen on Monday, boosted by hedge fund buying after the Bank of Japan's injected 7 trillion yen into the money market to help ease nervousness following Friday's massive earthquake and tsunami hit the country.
http://www.reuters.com/article/2011/03/14/businesspro-us-markets-forex-idUSTRE71J2YO20110314