Japan

Japan is back in recession. The incoming tide just brought in 2,000 bodies. Most major companies, including Toyota, Nissan, Honda, and Sony have shut down all domestic production. Tokyo’s subway system is closed, stranding 25 million residents there. Electric power shortages are a huge problem. Half the country’s nuclear generating capacity is now down. 20,000 expatriates waiting at Tokyo’s Narita airport as foreign companies evacuate staff to avoid a nuclear meltdown. $187 billion worth of credit intervention to “save Japan.”

About a year ago, when Zero Hedge was nothing but a monocultured, bearish, conspiracy theory-based blog, we wrote a post titled: "Is The Swiss National Bank Using UBS To Launder Its Euro Purchases?" The reason for this allegation stemmed from some dramatic observations in the reporting of LIBOR to the BBA by member banks. To wit: "The Libor reporting dispersion among BBA member banks has actually
tightened marginally from last week, with one notable outlier: UBS. Of
the 15 banks that report both USD and EUR-based LIBOR, all disclose a
higher offer rate for EUR Libor except for UBS! The Swiss bank is a
blatant outlier, in that its disclosed EUR Libor rate of 0.4850% is in
fact 10% lower than its USD Libor." Out explanation for this anomaly was that the Swiss Bank, most likely in concert with the ECB, were manipulating intercurrency unsecured funding reporting in order to mitigate FX mismatch: "SNB buys EUR in the open market (causing massive destruction in the EURCHF and GBPCHF pairs), then the excess euro holdings are funneled back into the market via a much cheaper EUR lending rate in the 3M funding market (LIBOR) compared to all other banks: the UBS 3M EUR Libor rate is a whopping 30% below the average EUR Libor rate of 0.6344%, nearly double the spread from average of the next lowest EUR Libor offer, that of RBS at 0.56%." Once again our monocultured perspective appears to have served us well - per Dealbook "UBS said Tuesday that United States and Japanese regulators were investigating whether the Swiss bank tried to manipulate a key benchmark used to set interest rates around the world." We can't wait to see what the Mainstream Media does with this one, as usual with its roughly one year delay.

Jason Kelly, a financial writer living in Sano, Japan, shares his first person experience of the stunning events from the past several days: "The power interruptions and damage to infrastructure are leaving stores in Japan’s earthquake area sold out. Gas stations are rationing, but closing one by one as they go dry. Between a third and half of the shops in my town, Sano, are closed for various reasons, not least of which is to let society catch its breath. The following pictures were taken by mobile phone at stores in Sano"

Following explosions in at least two reactor cores at Japan's Fukushima nuclear power plant - and as the developing crisis is rated at level 6 of seven levels on the International Nuclear Events Scale (previously being 3, or below 3 Mile Island status, to keep the panic level low)- attention is turning to just what is happening inside the 40-year-old power plant in north-east Japan. Al Jazeera's Dan Nolan explains how a meltdown would happen.

The IAEA Incident and Emergency Centre (IEC) continues to monitor the status of the nuclear power plants in Japan that were affected by the devastating earthquake and consequent tsunami. All units at the Fukushima Daini, Onagawa, and Tokai nuclear power plants are in a safe and stable condition (i.e. cold shutdown). The IAEA remains concerned over the status of the Fukushima Daiichi nuclear power plant, where sea water injections to cool the reactors in units 1, 2 and 3 are continuing. Attempts to return power to the entire Daiichi site are also continuing.

Following reports that all major banks have pulled their employees out of Tokyo overnight, finally broad evacuations are starting to spread to the ordinary citizens, starting with China. AP reports that: "China became the first government to organize a mass evacuation of its citizens from Japan's northeast on Tuesday, while other foreigners left the country following radiation leaks at an earthquake-damaged nuclear power plant. Austria said it is moving its embassy from Tokyo to Osaka, 250 miles (400 kilometers) away, due to radiation concerns. France recommended that its citizens leave the Japanese capital, while the U.S. government advised Americans to avoid travel to Japan." And while the Chinese concern for its citizens is admirable, what is peculiar is the complete silence as to how China, which is very much downwind from Fukushima, is handling the fears of its own local citizens regarding spreading radiation.

Confirming, yet again, that MIT Ph.D.'s (such as the FRBNY's Brian Sack) are among the most dangerous around, a paper made the rounds yesterday by one Josef Oehmen titled: "Why I am not worried about Japan’s nuclear reactors." In the ensuing 48 hours, anyone who listened to Josef's advice (who incidentally is not a scientist) and was also "not worried about the reactors" has paid an exorbitant price, possibly up to and including their lives. We demand that MIT School of Nuclear Science and Engineering clarify their position on the matter, and make sure that incidents such as this, where Oehmen's paper received top billing due to its perceived "endorsement" by MIT and has since been completely discredited, never recur.

There are simply too many balls being juggled in the air to hope that none of them - not one of them - will fall.

Markets strongly negative this morning as the Japanese earthquake and its accompanying nuclear threat continue to worry investors despite the pledge for government support. The FOMC will meet today and will likely maintain rates at their current levels and show support for the completion of QE2. However, the Japanese earthquake and respective stimulus reaction offers the potential for an unexpected announcement, though we ascribe a low probability to this occuring. Today’s Empire State manufacturing survey for March is expected to come in at 16.10E v 15.43 prior, in line with its recent correlation with the rising Philadelphia Fed Index. The Treasury will release US foreign net transactions today showing a decrease to $55.0BE v $65.9B prior.

Japan's nuclear crisis has deepened and we deeply regret to say that there is now the real possibility of a nuclear catastrophe. Investor panic has set in with the Nikkei down over 16.5% in two days and the Topic index down by 17% - its worst two-day loss since the 1987 Wall Street stock market crash. The cost to insure Japanese debt has surged to a record with credit-default swaps protecting Japanese government debt for five years soaring 27 basis points to a record of 125 basis points. One UBS trader said that the deteriorating nuclear crisis had led to "near panic across local credit-default swap markets." While most equity indices and commodities have fallen, some sharply, gold has remained resilient and is down 1% in US dollar terms and is higher in Australian dollars which like other so called 'commodity' currencies has come under pressure in recent days. Gold remains marginally higher in all currencies since the tragedy began last Friday.

Simply surreal news out of Tokyo (which unfortunately we predicted once again) which is now reported to have ten times normal radiation levels: "Radiation wafted from an earthquake-stricken nuclear power plant towards Tokyo on Tuesday, sparking panic in one of the world's biggest and most densely populated cities. Women and children packed into the departure lounge at an airport, supermarkets ran low on rice and other supplies and frightened residents, tourists and expatriates either stayed indoors or simply left the city. "I'm not too worried about another earthquake. It's radiation that scares me," said Masashi Yoshida, cradling his 5-month-old daughter Hana. Confidence in the government is shaken and many decided not to take chances, especially after radiation levels in Saitama, near Tokyo, were 40 times normal -- not enough to cause human damage but enough to stoke fears in the ultra-modern and hyper-efficient metropolis of 12 million people. Many hoarded food and other supplies and stayed indoors. Don Quixote, a multistorey, 24-hour general store in Tokyo's Roppongi district, was sold out of radios, flashlights, candles, fuel cans and sleeping bags on Tuesday.

• Radiation levels at the quake-stricken Fukushima Daiichi
  complex have varied wildly, with a reading of 11,930
  microsieverts at the main gate of the plant at 0000 GMT, up from
  596 microsieverts as of 0630 GMT.
• Elsewhere at the plant, levels reached as high as 400,000
  microsieverts an hour (or 400 millisieverts an hour).
• The government gave no update on the status of a steel
  container surrounding the core of the plant's No.2 reactor,
  deemed by observers as most at risk of a meltdown.
• An explosion on Tuesday at the No.2 reactor had caused
  some damage to its suppression pool, which helps to cool and
  trap the majority of cesium, iodine, strontium in its water.
• Later, there was a fire and explosion at the complex's No.
  4 reactor and this is likely to have contributed to rising
  radiation levels.
• The No. 4 reactor had been shut down for maintenance ahead
  of the quake, but a spent-fuel cooling pool associated with that
  reactor caught fire, causing the explosion.
• The No.4 reactor's cooling pool, where spent nuclear fuel
  is stored, may be boiling and the water level may be falling.
• Radioactivity at the cooling pool is high and Tokyo
  Electric cannot make checks at the site or determine what has
  burned.
• Radiation leakage from complex is likely to spread after a
  fresh explosion at the plant.

All hell is currently breaking loose following an explosion at reactor #2 and a another hydrogen explosion at reactor #4 per Kyodo, leading to a 16% drop in Nikkei futures as blind panic grips Japan. Kyodo essentially confirms there was a reactor meltdown as radiation levels at Fukushima 3 are now 400 times legal levels. And topping it all Japan's warning that all people within 30 kilometers from Fukushima should stay indoors and that the radioactive winds may reach Tokyo in as little as 8-10 hours. The BOJ has just intervened to prevent the yen from surging, as the following chart shows. Our prayers are with the people of Japan.

Are West Coasters in any danger?

For all who have been looking for realtime radiation data from Japan, you are in luck. Or maybe not, as the data unfortunately indicates nothing good. The System for Prediction of Environment Emergency Dose Information (SPEEDI) releases gamma radiation data online. The site is jittery and apparently not suited for major traffic which is why we represent several screen captures of the data. While it is not surprising that according to the website both Miyagi and Fukushima prefectures are entirely "Under Survey" as it makes sense that the government does not want to generate panic, SPEEDI has disclosed some tell-tale data about cities in Ibaraki prefecture, which is just a hundred or so miles north of Tokyo, and is just south of the ill-fated Fukushima prefecture. And the data is stunning: based on a N, NE and NNE wind direction (where it originates), meaning all coming from Fukushima, with a normal reading in the 80 nGy/h range, the city of Kounosu Naka is at 3,024, Kadobe Naka is at 2,416, Isobe Hitachioota is at 1,213 and many others are in the mid to upper triple digit range! Again, this is based on wind coming out of Fukushima and ultimately headed toward the capital. Indicatively, normal terrestrial plus cosmic gamma radiation is about 80 nGy/h.