The Economic Impact of Japanese Sunami
Japan’s Earthquake & Tsunami March 2011: The Economic Impact The effect of Japan’s earthquake and tsunami on the Japanese and world economy - The Economic Impact of Japanese Sunami introduction. Japan’s March 11, 2011 earthquake and tsunami. An 8. 9 magnitude earthquake hit Japan on March 11, 2011 and the result of the earthquake was a large tsunami that caused massive devastation. Japan has been undergoing a humanitarian crisis as thousands of people have been displaced due to one of the strongest earthquakes in modern history. What will be the economic impact of the disaster?
The full extent of the economic impact tsunami is apparent , hundreds of factories were shut across Japan, warnings of rolling blackouts and predictions from economists that the disaster would push the country into recession. The Bank of Japan were preparing to pump billions of yen into the economy when it announces an emergency “quake budget” to prevent the disaster derailing the country’s fragile economic recovery. Toyota and Nissan said they were halting production at all of their 20 factories.
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Toyota, the world’s largest carmaker, evacuated workers from two plants in the worst affected regions and has not been able to reach the sites to inspect the damage. The plants make up to 420,000 small cars each year, mostly for export. Two of Honda’s three plants remained closed. Other manufacturers have also reported major damage to their factories, with Kirin Holdings, Fuji Heavy Industries, GlaxoSmithKline and Nestle among those to halt operations. Sony, the electronics group, had suspended production at eight plants. At one plant, 1,000 workers had to take refuge on the second floor after the tsunami hit.
All ports have been closed amid warnings of aftershocks to come. Japan’s utilities providers are warning of rolling blackouts across the country in the coming days because they are unable to meet electricity demand. Nuclear power generates about a third of the country’s electricity but six reactor units at Fukushima remain offline indefinitely. An estimated 2 million homes are without power and about 1. 4 million do not have running water. Equecat, a risk consultancy, estimated over the weekend that the economic losses from this earthquake would total more than $100bn (62bn).
Analysts said one of the Bank of Japan’s priorities was to advance “soft” loans to commercial banks to make sure they do not run out of cash as customers in the affected areas rush to withdraw savings. The central bank is expected to flood money markets with more cash than usual, partly to stop the yen from rising too much. Japanese firms and investors are racing to repatriate their assets, selling dollars and other foreign currencies, to prepare for the cost of rebuilding their domestic economy, which will push up the yen’s value.
It is feared this will make exports more expensive and choke off the hoped-for, export-led recovery. David Buik at BGC partners said: “The Bank of Japan, I am sure, will be on high alert, doing everything in its power to stop the yen becoming too strong, as well as providing the banking sector with all the liquidity it may require. “Japan’s economy is export-led. So with such an inordinately large budget deficit, it will be imperative to get those factories open again. ” The bank has little scope to cut interest rates, as they are almost at zero.
Economists said the bank was likely to hold fire on more drastic action while it assesses the economic impact 0f the disaster. Daiwa Capital Markets, the Japanese-owned bank, said it was likely the economy would be pushed into recession, with exports particularly badly hit. Economists had expected growth of 0. 3% this quarter but now expect a second successive quarter of negative growth. The huge cost of rebuilding the affected areas will push up Japan’s public debt, which is already the largest among advanced economies. The Nikkei index, which fell 1. % on Friday, is expected to post large falls when it reopens as the scale of the damage becomes clear. Some analysts warned it could tumble below the psychologically important 10,000 mark, which would represent a 2. 7% drop from Friday’s close, with one analyst at Toyota Asset Management telling Reuters it could fall below 9,000 soon. Oil prices, which fell by 3% on Friday, are likely to continue falling this week. Japan is the one of the world’s largest importers of oil but demand is likely to drop as industrial activity falters.
Strategists have been analysing the economic impact of Japan’s last major earthquake, in 1995 near Kobe, for clues. The Impact of Japan’s March 2011 Earthquake & Tsunami on the Global Economy Japan is the 3rd largest economy in the world and is also 3rd on the list of countries that consume oil. The earthquake disaster may have a deleterious short – medium term effect on their economy. China is now the second largest economy in the world and they have been growing at a slower pace recently which could also have a short term impact on world commodity prices along with Japan.
Japan and China may experience decreased rates of growth but the U. S. is expanding which may help balance aggregate demand for goods and services globally. Japan’s Earthquake & Tsunami 2011: The Effects on the Economy – Short Vs. Long Term Longer term, the rebuilding process will have positive effects on Japan’s economy which still hasn’t fully recovered from an economic recession that began in the 1990?s. The earthquake-tsunami that occurred on March 11, 2011 will have a negative impact short term on the Japanese and world economy but these effects should not persist long term.
The consequences can be:- 1. If the government issues newer bonds for rebuilding and reconstruction, the country might face huge debt crisis, since the country has been still in the process of recovering from its past recession and shrinking economy. However for a country like Japan, which has a great infrastructure, good wealth conditions, huge economy, top class building codes, better emergency readiness and excellent hospitals, it should be able to recover from this tragedy as quickly as any nation could.
The major challenges in front of the country is, facing the rebuilding costs, demographic challenges and existing fiscal burden. 2. According to the analyst there could be short term economic effect on other countries as well. Like U. S. automakers could see short term benefits. US businessmen who are in manufacturing segment might feel some boost in the business owning to the growing demand for reconstruction of houses and other buildings. The major impact will be on the Japanese companies who export their products like Honda, Toyota, and Sony as closed production centres and ports might add up to the financial burden. . Since Japan is the third largest importer of oil, shutting down of the Japanese refineries due to the disaster can lower demand for oil consequently lowering the crude oil prices. Australia’s mining industry can get affected due to closure of Japanese steel mills. In Japan many factories have been shut down or damaged. It is said that effect on the technology market will be huge. 4. Japan’s Nikkei index dropped 1. 7% and the Hang Seng index in Hong Kong declined 1. 5% after the tsunami hit. In the U. S. , stocks were basically flat.
There is a probability that yen might rise against the dollar due to financial flows into Japan from overseas. 5. In a statement, officials of The Bank of Japan, the country’s central bank said that the bank would .. “. continue to pump liquidity in the financial system to ensure the stability in financial markets and to secure the smooth settlement of funds, in the coming week”. According to the latest report, the bank pumped 15 trillion yen ($183 billion) into money markets to assure financial stability. According to an estimate by an insurance industry analyst, the insurance industry’s losses in Japan at $10 billion. . It is said that Japanese industrial sectors might face a slowdown due to the shortage of electricity generation capacity. According to IHS Global Insight estimates, real GDP growth of Japan could decline by 0. 2 to 0. 5 % point this year. But if the ongoing nuclear crisis continue to rise further then the impact can be much larger 7. Since Japan’s exports and imports are a relatively small share of GDP, the trade flows across the globe will not be effected much. However global supply chains (autos, telecommunications and consumer electronics) can have a significant downturn.
According to the latest analysis, there will be a negligible negative impact on global growth this year. 8. In the US, there will be slight disruption in the production part. US operations of Japanese automakers might face a slight setback due to unavailibility of parts arriving from Japan and disrupted supply chain. However this can be an advantage to the domestic producers as demand will shift to them 9. There will be a fall in the sentiments of firms and household sector as they will be fearful in their investment decisions. Japan’s tsunami and economies like Philippines.
WHEN THE world’s third largest economy suffers a natural disaster , it is inevitable that its economic impacts will permeate through the world’s economies. Analysts expect that the effects on the Philippines would be significant. Japan, after all, occupies a dominant position in the whole range of external economic relations, spanning trade, investments, labor migration and foreign assistance. Last year, Japan was the single biggest buyer of exports, accounting for 16. 2 percent of all export earnings. It was also the single biggest source of imports (12. 3 percent).
Japan is also consistently among the top three sources of foreign direct investments (FDI) in country. Over a million Filipinos are estimated to be residing and working in Japan, counting both documented and undocumented ones. And Japan has traditionally been the largest country donor of official development assistance (ODA) receive from abroad. With economy’s close linkage to that of Japan, their tsunami would have to have some impact on Philipines. So how will the disaster affect the Japanese economy, and with it, economies closely dependent on it like the Philippines?
There is no disagreement about the disaster’s serious short-term impacts, particularly the loss of possibly tens of thousands of human lives, untold property damage and a standstill in production. Nouriel Roubini, the US economist said to have predicted the 2008 global financial crisis, believes that the earthquake and tsunami are “the worst thing that can happen in Japan at the worst time. ” With a government budget deficit already running at around 10 percent of gross domestic product (GDP), the Japanese government will be forced into massive spending to repair the damage, both physical and economic.
This would also put into serious question the Japanese economy’s longer-term stability due to the huge imbalance in government finances that would result. But such massive spending would actually perk up their economy after overcoming an initial slowdown due to the immediate damage to production facilities. When an earthquake of magnitude 6. 8 hit the city of Kobe in 1995, economic growth in its aftermath exceeded 3 percent on an annual basis, a blessing then. Japanese economists also cite that most of their industrial production happens in the unaffected southern areas, and production will simply be shifted to the southern plants for now.
What are the near-term implications for the Philippine economy? The short-term slowdown in industrial activity—and a halt in some cases—might be expected to translate directly into a short-term slowdown in job opportunities, and outright layoffs in some cases, for Filipino workers in that sector. Some slowdown or contraction in the services sector is also likely, leading to a discernible slowdown in jobs for Filipino service sector workers, including in entertainment. Our exports to Japan of raw materials and intermediate components that feed their industries are also likely to see a short-term slowdown.
Along with the overall immediate slowdown in the Japanese economy will come a slowdown in FDI coming from their direction. And with heightened pressures on the Japan government’s finances, it is also logical to expect a negative impact on Japanese ODA in general. Is the rest of the world economy going to be negatively affected by Japan’s difficulties, thereby having second-round effects on us in turn? The global effects are likely to be mixed. Already, the Japanese yen has begun to appreciate, which is being attributed to large-scale entry of funds sent from abroad to help fund repair and reconstruction.
Analysts see an impact on fuel prices to be among the more immediate effects, as Japan is also the third largest oil consuming country worldwide. With a number of its nuclear power plants placed out of commission by the disaster, Japan is expected to hike its purchases of natural gas for its gas-powered power plants to take up the slack. This would put upward pressure on natural gas prices. On the other hand, reduced demand for petroleum due to the short-term slowdown in industrial production would have the opposite effect on oil prices.
The latter would be a welcome neutralizer for recent upward movements in oil prices due to the spreading turmoil in Middle Eastern countries. Japan’s tsunami and our economy * As far as Indian stock markets are concerned, the crisis may not have a direct impact on Indian economy and business. * No re-work in investment decisions is required because of this tragedy in Japan. * However, the disaster may have affected investor’s sentiment, the effect of which will be evident only as the stock market opened.
Investors these days have so little confidence in the health of the national and world economy that they sell shares at the slightest hint of anything that might impact it negatively, and that pushes the stock market down. * The 153 points fall has more to do with lower factory output growth which raised concerns of RBI raising interest rates, amid a weak global trend. A hike the key policy rates will have a negative impact on Indian markets. * In the coming days, as the economic impact of the disaster gets assessed, the emerging results may give fresh trigger to the markets. In short, there nothing to worry about. Only small hiccups due to panic should be expected. Japan’s Earthquake & Tsunami After-Effects * The Dow Jones Industrial Average fell below a key support level that day. The Dow fell below 12,000 which is a key psychological trader observation level. * The Nikkei fell 8% in the first five days after that earthquake but then rose by 5% in the next 10 days. After the initial disruption, the economy grew by more than the trend growth rate at the time for 1995 and 1996.