From the May 01, 2011 issue of Futures Magazine • Subscribe!

A real tsunami’s effects

Editor's Note

imageThe impact of the March 9.0 earthquake just off Japan has affected the derivatives business near and far. The tragedy of the lives lost is the saddest impact. But the tsunami’s destruction of the Fukushima nuclear power plant — and the radiation leakage — still is a threat to the country, as are the continuing earthquakes and aftershocks. Many of us in the media have used the term tsunami to describe market moves, but nothing compares to the devastating effects of a real one.

The earthquake happened just before an industry conference in Florida, so some representatives from Japan already were in the States when it hit. Ironically, CME Group Vice Chairman Charlie Carey actually was in Japan when it happened, having just come to Narita International Airport from Tokyo. "We arrived about 2:50 p.m. The security line was stopped. When I asked somebody from United [about the hold up], they said that there had been an earthquake and the airport was closed while they checked the runways [for damage]. Shortly after that the airport started shaking violently. I ran outside but the ramp I was standing on continued to shake." They then were evacuated while the authorities checked for structural damage. "After about two hours they let us go back into the terminal, first floor only, while they checked the rest of the airport for safety reasons." He slept in the waiting room area that night — feeling several aftershocks — but was able to fly out the next day.

People in Tokyo evacuated buildings after the first quake. Masahiro Tamagawa of HS Futures in Tokyo told our reporter that Ginza Avenue was flooded with people. Then came the second quake, which was when his firm decided to close for the day. Power and phone lines were down across the northern and eastern sections of the country. Because of the nuclear power plant closures, rolling blackouts were implemented. One Tokyo Commodity Exchange representative said the biggest problem in keeping the exchange open was staffing. Because of the rolling blackouts, mass transit was spotty, so only those living in Tokyo could make it into the exchange. Still, all the exchanges remained open and running. Tamagawa says, "Most of our customers trade online. If they had connectivity, they were able to keep trading."

Another major problem continues to be the seepage of radiation into the local food and water. As Tokyo is only 150 miles south of where the plant is located, a "low" level of radiation was found in the city’s water supply. When some business people vacated the city, the Tokyo Stock Exchange president took umbrage and scolded them, accusing non-Japanese banks of cowardice and blaming the international press for sensationalism. However, now that the Fukushima plant has been upgraded to a danger level matching that of Chernobyl, it will be interesting if a larger exodus occurs.

Having been to Japan a few times and falling in love with the culture and people, my heart goes out to them. But as is the Japanese way, they handled it (and continue to) with grace. Even after the immediate quake, Carey noted, "the Japanese people were very much under control. It was very orderly. They handled a very difficult situation. You could tell it was a cultural thing."

Of course beyond the human tragedy there is the event’s impact on the markets. Not only whether businesses stay open, but how markets will continue to react, especially to the Japanese economy and commodity demands. In "Metals: Are the best years behind?" by Assistant Editor Michael McFarlin, several analysts discuss how this event will affect metals prices. As the third largest economy in the world, if Japan is hurting, the rest of the world will ache. Both precious and industrial metal prices reacted to this event, and just like in Japan, the aftershocks will be felt in the complex for a long time.

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