Economic after-shocks of the Japan Earthquake
- Sagar Makode & Mandar Ghayal

The going ahead is extremely difficult for the Japanese economy. The March 11 earthquake and its after-effects, namely the tsunami and the nuclear crisis at Fukushima Daiichi Nuclear plant have caused damages amounting to approximately US $300 Bn. This will cause a significant financial strain on the economy, and leading to increased debts on the part of the Japanese government. The death toll has been estimated at around 28,000 including those still missing. The risk of radiation leakage and proliferation still looms heavy at the Fukushima nuclear plant. These unfortunate events have the following implications on the Japanese as well as the global economy scene.
Appreciation of YEN: Japanese insurance companies and other businesses and investors are believed to have been selling overseas assets denominated in other currencies to raise cash back home. The scramble to buy Yen has forced up its value. A rising Yen poses a huge problem for the Japanese economy as a higher Yen makes Japan's products more expensive to anyone in the rest of the world paying for them with another currency, and therefore may lead to reduction in export revenues. Japan is the world’s 4th largest exporter. In the wake of this situation, the central banks of the G7 countries have agreed to a coordinated effort to keep the rising Yen under check.
Rising Debt: Japan already has the largest debt burden of any industrialized country, at about 200% of GDP. Now, as it faces huge relief and rebuilding efforts, Japan will have to issue more bonds to cover the cost, which preliminary estimates place at roughly $200 billion. The risk is that, as it piles on more debt, the Japanese government will have to pay higher interest rates to investors to maintain demand for all those new bonds. Increase in interest rates by even 1% will equal about 25% of the tax revenues. Thus financing this debt is a huge problem for Japan.
Global Trade & Industries: The damages inflicted by the twin disasters of the quake and the tsunami have affected various industries such as Auto and auto ancillaries, Electronics, tobacco, Metals and Manufacturing, Photo and Optical media, Seafood etc. The quake forced shutdowns as well as delays in production activities of major Auto manufacturers such as Honda, Suzuki, Mitsubishi, Toyota and Isuzu. Electricity generation [coal and nuclear] will be lower by 10 – 15% in the short run. A majority of the auto component manufacturers are yet to resume normal levels of production. Supplies of plastics, rubber, and electronics components are reported to be falling short and this could disrupt the production schedules of several automakers globally. Problems like rolling blackouts, fuel shortages etc are responsible for this situation.
Incidences of increased levels of Iodine 131 in seawater have caused a decline in seafood exports. Fears of radiation have caused decline in exports via the sea route, as radioactive iodine from Japan has reached far off shores such as Russia, China, Scotland, Ireland and the USA. Radiation from the Fukushima leak has been detected in at least 12 U.S. states.
The earthquake has severely affected Japan’s exports with China, its biggest trading partner. After the quake, prices of electronic items and auto parts shot up in China, as the supply chain was affected. Major industries across the globe have been affected by delays in procurement from Japan. Korea’s IT industry, Auto manufacturers in US and Europe, Seafood exports in India etc have been adversely affected. The Global Insurance industry too has been impacted by the disaster. Private insurers in Japan are expected to bear costs of about $35 Bn.
The true extent of the impact of the disaster cannot be assessed in the short term. Still, the Japanese are well-known for showing true resolve. The exemplary manner in which the Japanese authorities as well as the common people have handled the situation is inspiring. The discipline, the integrity and determination shown by them has been truly remarkable.
For more than a week, the Bank of Japan has been injecting capital into the money market in an attempt to calm investors' fears. In the days after the initial earthquake, the markets have had a chance to digest the possible ramifications of what this might mean for Japan's economy.
Let us hope that Japan eventually emerges from this disaster stronger than before.