Risk of radiation leaks in Japan following the historical earthquake triggered sharpest two days fall in Tokyo Topix on record and sent Asian equities deep in red today. The focus has turned from damages from earthquake and tsunami to nuclear crisis in Japan. Tokyo Electric Power confirmed third explosion today at the No.2 reactor of it Fukushima Dai-Ichi nuclear plant and a fire had broken out at housing in its No.4 reactor. Japan Prime Minster Kan warned of further radiation leaks. It's reported that low level radioactive wind could reach Tokyo in ten hours. Nikkei is down over -1300 pts or -13% at the time of writing. BoJ pumped another JPY 5T into the banking system, following yesterday's record JPY 15T injection. There are also talk of a brief one-off intervention in the forex markets. But Yen is still sharply higher on risk aversion and expectation of repatriation.
The forex and other markets respond by steep selloff in risks. It's reported that Japanese are liquidating position in high yield assets, including stocks, commodities and carry trade currencies for funds for rebuilding. Aussie is the worst performing currency so far today. In particular, note that AUD/JPY breaches 80.96 key near term support which could be seen as an indication of near term reversal. We'd probably seen steeper selloff in AUD/JPY if 80 psychological level is taken out.
Elsewhere, dollar benefits from risk aversion and jumps across the board. Dollar index stages a strong rebound from yesterday's low of 76.30 and the development suggests that consolidation from 76.13 is going to extend further. That is, the index would likely stay in range of 76.13/77.38 for a while. At this point, there is no clear sign of reversal yet and we won't turn bullish in dollar until we see sustainable upside momentum in the index.
On the data front, German ZEW, Eurozone employment, UK DCLG house prices, Canada labor productivity, US empire state manufacturing, import price, TIC capital flows, NAHB housing index will be released. Fed will also announce rate decision today. But all eyes will remain on development in Japan and these events would take a back seat.
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