Riyadh quiet, Japan threatened by nuclear meltdown after earthquake

Japanese technicians are battling to prevent a nuclear meltdown at two power station after the seventh strongest earthquake in recorded history yesterday which left a 1,300 mile stretch of coastline devastated and oil refineries burning.

With more than a thousand dead the human tragedy is already appalling but if a nuclear power station now explodes it will clearly be much worse.

Financial tsunami?

The financial implications are impossible to fathom but hardly likely to be good for the world’s markets. Japan was only recently overtaken by China as the world’s second largest economy and is also one of the most highly indebted.

The rather cool initial reaction of global financial markets may prove to have been an underestimate of the impact of this natural disaster which is going to cost hundreds of billions to put right. It certainly took the Middle East off the front pages and the no-show for protests in Saudi Arabia was ignored, so too the mounting sectarian clashes in Bahrain with tens of thousands on the streets yesterday.

Indeed, oil prices fell because Japanese refineries that are on fire will not require crude oil for sometime. But this is far more than an oil demand shock.

Safe havens

Just as those nuclear power stations initially appeared to be safe after the earthquake – with emergency cooling systems said to be working – who knows what cracks there are now beneath the Japanese financial system. For sure protestations from officials that everything is fine are to be treated with skepticism.

The safe move for investors is into cash or precious metals. The Japanese fled to the yen as a safe haven. Adding an overvalued currency to the rest of that nation’s financial problems can hardly help.

But the Japanese also have huge amounts invested in foreign assets. What will happen to global markets if they decide to sell these to pay for the reconstruction? Another prop to the global economy fell yesterday.