How will the Japanese earthquake affect Japanese assets?
At the afternoon of January 1st, a strong earthquake occurred in the Noto Peninsula of Japan, and a tsunami warning was issued, with strong tremors felt in the capital city of Tokyo.
Currently, the reconstruction work in the disaster area remains full of challenges, and the displaced people's sheltered life tends to become prolonged. According to a report from Kyodo News in March 2023, despite progress in the construction of infrastructure in the disaster area, Japan still has about 31,000 people living in evacuation and unable to return home due to factors such as the Fukushima nuclear power plant accident.
Impact of the Earthquake on Japanese Assets
$Tokyo Electric Power Company Holdings(TKECY)$ Tokyo Electric Power Company announced on January 1st that on the upper floors of the reactor buildings of Units 2, 3, 6, and 7 at the Kashiwazaki-Kariwa Nuclear Power Station in Niigata Prefecture, it was confirmed that the earthquake shaking caused water to overflow from the fuel pools, but leakage or damage to the buildings has not been confirmed.
$Toshiba Corp.(TOSYY)$\ Kohi Semiconductor and Mitsuke Electric have semiconductor factories in Ishikawa Prefecture, and the extent of damage is currently under investigation.
Monetary Policy, Yen Exchange Rate
First of all, the earthquake will bring about a demand for insurance claims in Japan. Since a large proportion of foreign assets are included in the assets of Japanese insurers, the earthquake may lead to the appreciation of the yen. During claims settlement, there will be "selling of foreign assets, selling US dollars for yen, and using yen for claims settlement," which will create upward pressure on the yen. In March 2011 during the Great East Japan Earthquake and in April 2016 during the Kumamoto Earthquake, there was a short-term appreciation of the yen.
However, the possibility of the Bank of Japan exiting negative interest rates at its January 2024 meeting has significantly decreased. Based on historical experience, the Bank of Japan rarely makes adjustments to tighten monetary policy shortly after major natural disasters. At the same time, years of ultra-loose policies have created resistance to normalizing the Bank of Japan's monetary policy.
Before the December interest rate meeting, the market expected the Bank of Japan to announce the earliest exit from negative interest rates at its meeting on January 22-23, 2024. However, it now appears that the announcement may be made at the meetings in February or April on 25-26.
Meanwhile, in an interview in December, Bank of Japan Governor Kitaoka expressed the view that "it would be too late to judge after the wage increase results of small and medium-sized enterprises are announced after April."
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