Tokyo:
Companies in Japan evacuated and closed plants on Friday as they scrambled to assess the effects on their operations after a powerful earthquake and tsunami struck the northeastern part of the country.
As aftershocks continued Friday afternoon, many company executives said it was too early to gauge what the initial effects on their operations had been or what the long-term fallout on business demand was likely to be.
Any disruptions in this country's exports will inevitably ripple through an economy that has stagnated over the last two decades. Japan's gross domestic product fell 0.3 percent in the October-December quarter as the end of generous government incentives on environmentally friendly cars resulted in a temporary decline in spending. At an annualized rate, Japan's economy shrank 1.1 percent in the fourth quarter from the previous quarter.
"There are car and semiconductor factories in northern Japan, so there will be some economic impact due to damage to factories," Yasuo Yamamoto, senior economist at Mizuho Research Institute in Tokyo, told Reuters.
All Japanese ports were closed, shippers said Friday, though the shutdowns may be precautionary. The country's major container seaports, most of them south of Tokyo, play a crucial role in Japan's export-driven economy. Japanese exports -- chiefly automobiles, machinery and manufactured goods -- rose by almost a quarter in 2010, the first increase in three years, and a lengthy shut-down could create costly delays up and down the global supply chain. Reuters reported that several airports, including Tokyo's Narita, were closed.
Numerous airlines diverted flights away from the affected area, and the airport in the city of Sendai was flooded by a tsunami that followed the quake, according to the Japanese television broadcaster NHK.
The Japanese central bank said on its Web site that it would "do its utmost," including providing extra liquidity, to ensure financial market stability.
The Associated Press reported that the Cosmo Oil refinery outside of Tokyo was burning out of control with 100-foot flames whipping into the sky. Several nuclear power stations were shut down, according to media reports.
Sony halted and evacuated six factories in northeastern Japan, while the automaker Toyota and its affiliates closed three factories, Bloomberg reported, citing representatives of the two companies. Numerous other companies said they were still assessing possible damage; many others could not be reached for comment.
Over all though, the real bulk of industrial Japan appeared to have been spared, said an economist in Hong Kong, who had been in touch with his colleagues in Japan but asked not to be identified as he was not authorized by his bank to talk about Japan.
"Inevitably there will be microeconomic disruptions, as there were after Kobe and even Chuetsu," Richard Jerram, chief Asia economist at Macquarie, wrote in a research note, referring to other powerful earthquakes that had hit Japan in recent years. "However, many firms reportedly diversified supply chains in the wake of Kobe, so the impact should be lower."
Miyagi, the prefecture that is home to Sendai and the areas most affected by the quake, accounts for 1.7 percent of the Japanese population and the same proportion of gross domestic product, while the region of Tohoku as a whole is about 8 percent of G.D.P., Mr. Jerram estimated. Initial reports suggested that Tokyo, the financial center of the country, had not been badly damaged, he added.
The region hit by the tsunami is known for growing rice, and other rice-growing areas around the Pacific Rim may see coastal flooding at a time of already rising world food prices.
But Ben Savage, the managing director for rice at Jackson Son & Company in London, one of the world's oldest rice brokerage houses, said that the tsunami was unlikely to have much of an effect on global rice prices because rice tends to be fairly tolerant of the temporary ingress of salt water into paddies.
A separate concern is that many areas immediately adjacent to the ocean are now used for aquaculture of shrimp and fish and may be damaged, Mr. Savage said.
"The biggest problems tend to be infrastructure, roads and rail," said Janet Hunter, who teaches Japanese economics at the London School of Economics. "Almost everything is going to have to be replaced" that fell in the path of the tsunami.
Christopher Gerteis, an expert in contemporary Japan at the School of Oriental and Asian Studies in London, said the region largely depended on local fisheries for their food, and that the cost of reconstruction would include reclaiming the fishing fleet.
One of the few things that was immediately clear was that investors were deeply unsettled by the disaster, which took place just as the Japanese economy had begun to gather some steam.
However, many economists also caution that economic activity remained feeble, plagued by deflation, high government debt, and an aging population -- factors that contributed to the decision by the ratings agency Standard and Poor's to downgrade Japan's credit rating earlier this year.
The Japanese stock market had very little time to react to the quake, which occurred shortly before the end of the trading day in Tokyo.
The Nikkei 225 index, which had already been lower before the quake, ended down 1.7 percent for the day. Bond futures surged amid the uncertainty, though the yen quickly rebounded after initially dipping against the dollar as news of the quake came out.
Elsewhere in the region, the Hang Seng index in Hong Kong sagged 1.6 percent, while the Straits Times index in Singapore fell 1 percent.
Stephen Gallo, head of market analysis at Schneider Foreign Exchange, said early Friday that while the quake had threatened to trigger "knee-jerk" sell-off in the yen, Japan's "very low level of foreign creditors" could stave off declines.
The yen fell briefly Friday before recovering. By the afternoon, the dollar was at 82.34 yen, down 0.699 percent.
In Europe, Munich Re and Swiss Reinsurance, the world's biggest reinsurance companies, led the sector lower with falls of 4.5 percent and 4.9 percent, respectively. Reinsurance companies take on risk from primary insurers, which may face hefty claims resulting from damage caused by the earthquake.
"The last major earthquake to hit Japan was the Great Hanshin Earthquake which hit Kobe on January 17th 1995," Geoffrey Yu, a currency analyst at UBS in London, wrote Friday. The quake caused over $100 billion in damage, but dollar-to-yen index fell over 20 percent in the following three months.
"There is reason to believe this time the reaction would be similar," Mr. Yu said.
He noted that the insurance companies, though clearly implicated by the quake, might receive government backing.
"When any earthquake occurs and claims exceed 75 billion yen, the central government will cover between 75 percent and 90 percent of the cost, with only a fraction paid by direct writers and the Japan reinsurance company," Mr. Yu wrote.
He said that damages from the Kobe quake had been mitigated by low levels of coverage at the time, conditions that may well apply in the latest earthquake.