Nikkei drops as nuclear meltdown fears escalate

The Japan market index has declined as investors began to panic over the risky economic outlook.

The Bank of Japan stepped in earlier to provide short-term liquidity and expand an asset-purchase programme. But it failed to control investor panic as stocks and commodities dropped.

The loss of confidence in Japanese government bonds as a result of the quake became overwhelming as nuclear plants were rocked by further explosions and a fire.

Bank Of Japan (BOJ) Governor Masaaki Shirakawa pledged to secure financial stability and prevent investors from becoming more aware of the risk. But this was overwhelmed as the Topix index of stocks suffered its worst two-day drop since the 1987 crash.

The Bank of Japan has added eight trillion yen ($98 billion) into money markets  on top of Monday's record cash injection, to secure the nation’s financial stability. Critics say the BOJ needs to take more bold and aggressive actions to calm down the market.

Economic and Fiscal Policy Minister Kaoru Yosano asserted that markets would eventually stabilize and there was no reason to suspend them.

The slide in equities was due to uncertainty and the economy is healthy, he claimed. It was too early to comment on share-support measures, he added.

The yen rose against a majority of its most-traded counterparts as domestic investors, both retail and industrial, were expected to bring home overseas assets.

Analysts are forecasting that foreign investors may start liquidating their holdings of Japanese equities, because the riskier economic outlook increases supply of the currency. The finance ministry is already worried about the yen’s strength as a sharp fall in the dollar against the yen is triggering a sharp fall in share prices,

The Nikkei 225 (NKY) Stock Average closed 11 percent lower than at the start of trading on Tuesday.