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Economic Impact of Japan Tsunami 2011

Japan was devastated by a massive earthquake followed by Tsunami on Friday 11 March 2011. Although it is tough to estimate the financial and economic impact on Japan and other countries, but still according to the latest reports and analysis the consequences can be as follows.
  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.
  1. 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.
  2. 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.
  3. 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.
  4. 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
  5. 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.
  6. 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
  7. There will be a fall in the sentiments of firms and household sector as they will be fearful in their investment decisions.


Europe

The overall impact on the European countries will not be much significant as Japan's export market share is not much. However, Western Europe has been gradually in the process of recovering from the 2008/9 recession and debt crisis, even a mild economic downturn would be shocking for Europe. Japan provides less than 3 per cent of German imports and buys only over 1 per cent of total German exports. However trade might be indirectly impacted as nearly 54% of Japanese exports go to the Asian countries and nearly 45% of Japanese imports come from Asia. However the major concerns in front of Europe is rising crude oil prices and high food costs.

Rest of Asia

For Countries Australia and Indonesia, it will be beneficial as they are the energy exporters and Japan's energy needs will shift its focus from nuclear enery to thermal coal or gas. Also it is said that factory shutdowns due to continuous shortage of electricity supply might hamper Asia's manufacturing cycles. Countries like South Korea, Taiwan, Thailand and Hongkong will be impacted as a major share of their imports come from Japan. Other countries like India and other South Asian counties are unlikely to be much affected owing to lesser trade exposure to Japan. Commodities such as cement, steel, etc. might feel some price pressure given to the rise in demand for construction materials in Japan. It is said that, Vietnam's fish exports actually may benefit from the badly hit fishing industry in the tsunami-affected area. Since China's export share to Japan is considerably low, there will not be much direct demand impact on Chinese economy. However, Japan's disrupted supply chain can affect China, as a substantial share of China's goods imports come from Japan in electronic segment.

Impact On Various Industries

Sea Food Industry

As Japan's fishing industry has been badly affected, the sea food industry has suffered loss. Majority of the damage is caused to smaller sized boats . According to reports, the larger vessels which carry out their extractive activities around the coasts  were moved to the main port in Chiba Prefecture ,as their earlier station has been destructed badly. The aquaculture industry specially in Sanriku ( famous for chum salmon and Tuna operations) , Hachinohe city and the surrounding areas is badly affected. Various sea food processing factories and cold storage areas is hardly affected and the time of future recovery of these factories is uncertain. Due to lack of logistics operations and supply, shortage of electricity supply, there will be short term rise in the prices of sea foods. Additionally the radiation factor and low consumer confidence will affect the exports.



Camera and Photo Industry

According to the latest reports , renowned company Sony stopped its operations at ten factories and two research centers due to power outages caused by emergencies at nuclear power plants and damage caused by quake. One of the factory of Epson was hit by the tsunami and three other have been temporarily shut down due to rolling blackouts. Nikon's Sendai factory( manufactures D3S, D3X, D700 and F6) was shut down owing to damage to equipment and buildings .Canon  has suspended operations at eight factories located in Northern Japan. Other companies Ricoh ,Sigma, Fujifilm, Casio, Tamron and Panasonic are affected but not heavily and are trying to recover from the crisis. Although it is still two early to estimate and evaluate the damage caused and the recovering time.



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