Economy Watch: Japanese Disaster Reverberates Worldwide

Investors in Japanese equities proved to be as jittery as expected, with the Nikkei 225 average closing 6.2 percent down on Monday in Japan, on record volume of 4.88 billion shares. The only Japanese industry whose stocks gained were construction firms, since there will be a lot of rebuilding ahead.

As promised, the Bank of Japan flooded the Japanese economy with liquidity, but the central bank was not entirely optimistic. “The damage of the earthquake has been geographically widespread, and thus, for the time being, production is likely to decline,” it says in a statement. “There is also concern that the sentiment of firms and households might deteriorate.’’

Some Japanese industrial facilities were damaged by the disaster, but a good many more are being shut down or slowed down in the face of power shortages and rolling blackouts throughout the Japanese archipelago. The Japanese auto industry has come to a virtual standstill, for example, which will not only affect that country’s economy, but pose potential problems for U.S. and other nations’ automakers, who may soon be facing parts shortages. Consumer electronics and machine tools are also likely to be in shortly supply for the immediate future.

Money from Japanese overseas investments is already flowing back to Japan, as it did after the 1995 Kobe earthquake. The upshot of that capital movement for the time being will be a stronger yen against the dollar, as investor demand for the currency goes up.

Over the longer run, financing the rebuilding effort might be problematic for the Japanese government, which is holding debt that equals about 200 percent of the country’s annual GPD. By comparison, U.S. government debt is a little less than half that.

It’s too soon to tell, but there’s also a chance that the unfolding nuclear event in northern Japan might weaken the growth of nuclear power worldwide, as a contemporary global equivalent of what Three Mile Island did to the U.S. nuclear power industrial after 1979. By the same token, a loss of investment in nukes might benefit natural gas, coal and emerging green energy technologies. For now, the price of oil is going down.

Anonymous hits at Bank of America

The hacker black shirts at Anonymous have released e-mails that purport to be between employees of Balboa Insurance, a Bank of America insurance subsidiary acquired with Countrywide Financial Corp. in 2008. Reuters reported on Monday that a representative of Anonymous told the news agency that the emails indicate that the bank subsidiary was playing dirty by forcing delinquent borrowers to buy outrageously expensive homeowners’ insurance, helping drive them into foreclosure, and then hiding that fact.

In published reports, the bank called the emails stolen, the content not related to foreclosures, and the accusations “outlandish.” This incident apparently isn’t related to Wikileaks’ threats late last year to release documents about a “major U.S. bank” that would show bankers gone wild with malfeasance.

Wall Street took a dive on Monday, but not as much as the Japanese markets. The Dow Jones Industrial Average was down 51.24 points, or 0.43 percent, while the S&P 500 lost 0.6 percent and the Nasdaq declined 0.54 percent.