Japanese shares fell on Wednesday, giving up nearly half of the previous day's 4-percent gain, while government bonds edged higher as investors paused to assess the economic damage from this month's earthquake, tsunami and nuclear crisis. After foreign buyers returned to the markets on Tuesday, investors focused again on the costs of the March 11 disaster, which is expected to easily exceed the 10 trillion yen from the Kobe earthquake in 1995.
The government estimated total direct damage from the quake that hit north-east Japan would reach 16-25 trillion yen ($185-308 billion). The figure excluded losses for companies, which have been forced to shut their factories due to widespread power outages. Further radiation leaks added to anxiety as workers struggled to cool nuclear reactors on Wednesday and radioactivity was detected in Tokyo's water system.
The Nikkei average fell as much as 2 percent at one point before triming losses to close down 1.7 percent at 9,449.47 points, breaking a key support level at 9,500. Losses on the broader TOPIX index were smaller, with the index closing down 0.8 percent at 861.10. Electronic stocks helped pull the indexes off lows, with Canon rising 2.2 percent.
Nikkei futures traded in Osaka shed 1.7 percent to 9,370. More investors were buying Nikkei options to protect themselves from further downside risks. The put/call ratio on Nikkei options is 1.7, rising back again in favour of puts from 1.4 on Tuesday.
Before Wednesday, the Nikkei had risen nearly 17 percent from its March 15 low as cheap valuations attracted broad-based buyers, including foreigners. However, the Nikkei index is still down more than 8 percent from pre-quake levels on March 11. Japanese government bonds attracted safe-haven flows. The 10-year yield on the cash bond was down 3 basis points at 1.215 percent. Benchmark Japanese government 10-year bond futures rose 0.33 point to 139.73. Analysts said following Wednesday's solid three-month bill auction on Wednesday, the JGB market should draw decent demand at a two-year bond auction on Thursday.