The Economic Impact of Japanese Sunami

Topics: Japan, Economics, Economy of Japan Pages: 7 (2495 words) Published: May 5, 2011
Japan’s Earthquake & Tsunami March 2011: The Economic Impact The effect of Japan’s earthquake and tsunami on the Japanese and world economy. 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. 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 Nestlé 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 1.7% on Friday, is expected to post large falls when it reopens as the scale of the damage becomes clear. Some...
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