Special Japan Coverage: The Financial Fallout--Nikkei Ends Up 5.7%%, DJIA Off 1.2% For The Day

3.20 AM The Nikkei ended up 5.7% higher as problems with leaking reactors appeared to be temporarily under control.

8.50 PM The Nikkei recovered some of its lost ground in early trading as fears about a reactor explosion receded. The DJIA recovered most of its early losses and ended near the day’s high.

11 AM The DJIA has sold down by 1.7%. Toyota is off nearly 4%. Sony is off 2.7%. GE off 3.3%

7.05  US DJIA futures indicate an open down 300 points after an 11% drop in Tokyo. GE (NYSE: GE), a key supplier of reactor infrastructure is down 9% in the premarket

3.15: The Japanese Nikkei fell 11% on top of 6.2% yesterday  Tokyo Electric Power, owner of the troubled reactors dropped over 24%

Japan has gone from what was bad to far worse over the weekend after Friday’s 8.9-magnitude quake that rocked Sendai and northeast Japan.  When we tallied up the damage on Friday and compared the damage to the 1995 Great Hanshin earthquake, or Kobe earthquake, we figured that the small drops being seen in the Japanese markets were not near enough.  It turns out that the drop was not just not enough.  It was a gross miss entirely as the Nikkei 225 fell a whopping 6.18% to 9,620.49 in Monday trading.

10:50 AM EST UPDATE: EWJ down -7.8% at $9.97; JEQ down -5.8% at $5.90; JOF down by -6.8% at $8.47; and DXJ down -7.7% at $35.31.  In pre-market the iShares MSCI Japan Index (NYSE: EWJ) is down 7.9% at $9.95.  The Japan Equity Fund Inc. (NYSE: JEQ) has yet to trade but is indicated lower by about 5% on first look; the Japan Smaller Capitalization Fund Inc. (NYSE: JOF) is down 6.4% at $8.51.  The WisdomTree Japan Hedged Equity (NYSE: DXJ) is down 3.25% at $37.00.  The fallout in individual ADR issues is enormous (priced updated as of 10:50 AM EST:

Sony Corporation (NYSE: SNE) is down 7.4% at $30.98, was down 8.3% at $30.65 in pre-market.

Toyota Motor Corp. (NYSE: TM) is down4.65% at $81.65, was down 6.5% at $80.10 in pre-market.

Honda Motor Co., Ltd. (NYSE: HMC) is down 4.3% at $38.02, was down 5.9% at $39.74 in pre-market.

Hitachi Ltd. (NYSE: HIT) is down 14.3% at $50.68, was down 12.9% at $51.48 in pre-market.

Kyocera (NYSE: KYO) is down 5.15% at $93.12, was down 8.2% at $90.13 in pre-market.

NTT DOCOMO, Inc. (NYSE: DCM) is down 4% at $17.55, same as pre-market coverage.

Internet Initiative Japan Inc. (NASDAQ: IIJI) is down 14.55% at $6.25, was down 10.8% at $6.52 in pre-market.

Canon Inc. (NYSE: CAJ) is down 4.6% at $43.39, was down 6.3% at $45.52 in pre-market.

• Nuclear Power ambitions being killed globally
• Solar wins as nuclear dies
• An earthquake in San Francisco could cost us $390 billion

It is more than difficult to focus solely on the economic impact of tragedy when the death toll is rising and when there is a risk of a total meltdown of a nuclear reactor.  The consensus has now come around that this damage will definitely hit Japan’s GDP in the quarters ahead.

JON C. OGG

Update:

Preliminary estimates for the cost of the 8.9 magnitude earthquake are as high as $35 billion, and the effects of the tsunami could cause that to grow

According to research firm AIR Worldwide:

Given the enormity of the Mw9.1 earthquake that struck Japan less than two days ago, it is still in the very early aftermath of the event. Search and rescue efforts are still underway and damage assessment has only just begun, while considerable uncertainty still remains in the parameters that define the event.

Based on currently available information, AIR estimates that insured property losses from Friday’s earthquake will range between 1.2 trillion JPY to 2.8 trillion JPY. Using today’s exchange rate of 81.85 JPY to the dollar, this translates to a range of between 14.5 billion USD and 34.6 billion USD. To obtain this preliminary range, AIR simulated dozens of scenarios with varying magnitude (8.9 to 9.1), focal depth (15 km to 30 km) and rupture width (100 km to 150 km). The losses are most sensitive to rupture dimensions, and become extremely large if the modeled rupture is extended southward towards the Tokyo and Chiba prefectures, which contain a higher concentration of insured properties.

Oddly enough, public safety experts have begun to argue about whether that the Japanese seawalls have been built high enough over the last several years or whether the building code was stringent enough. Japan has spent tens of billions of dollars on seawalls to block tsunami waves since the Kobe quake.

Countries can hardly base public spending on 100 year events, and certainly not on 1,000 year ones. That may be tragic for victims, but earthquake public policy in a nation like Japan could cause a financial crisis comparable in its own way to the earthquake.

Douglas A. McIntyre