The recent Earthquake and Tsunami in Japan has obviously had a major impact on the Japanese people. Among the things that may be negatively affected is the Japanese Economy. There are many different ways that this could be impacted.

Repairs

The cost of repairs causes by the earthquake and tsunami will come into the billions. Whole town’s have been washed away and need to be completed rebuilt and this will take a lot of time and money. The cost is estimated to come to somewhere between $100 billion and $300 billion.

Closed Down Industries

Whole industries have had to be temporarily closed down and this will have a negative impact on the economy. If businesses aren’t operating they won’t be making money. This has affected businesses of all types; businesses as small as independent shops that have been damage, and business as large as multi-billion dollar operations.

The Nuclear Power Plant

The safety of the Fukushima nuclear power plant has been in the news more than any other story surrounding the earthquake and tsunami. Firstly, in terms of finance, it has been costly to try to limit the damage. Then there is the lost revenue from it not being operational, and there will be the cost of repair. There will also be the costs of dealing with related damage, such as contaminated water.

Transport

Important ports and airports have had to be closed due the earthquake and tsunami and some will need repair. This has had a wide impact on the short-term economy. It has meant the supply in and out of these destinations has slowed, or in some cases ceased altogether. Some will be closed for some time. This has the knock on affect of slowing down certain industries. This has been a particular problem because Japan’s economy is reliant on exports.

National Debt

All of the costs associated to the damage from the earthquake and tsunami will have an impact on Japan’s national debt. As any country in a similar situation would, Japan will have to borrow money to pay for the rebuilding required. And higher borrowing means higher interest payments.

This may all seem like bad news for the Japanese economy, but it may not be as bad as some fear. Japan’s economy has proven to be very resilient against such problems in the past, with the 1995 Kobe earthquake a good example. Although industrial production dropped in the month of the Kobe earthquake, it quickly increased again the following month.

The Stock Market

The reaction of the Japanese stock market was initially negative. One of the problems in these types of situations is panicked investors selling their stocks immediately, even though it can be rash and unnecessary. There have been examples of this in Japan since the disaster, which then have other knock on affects. This hasn’t been as drastic as it can be though, with some realising the history of Japan’s recovery from disasters in the past.

Japan is generally quick to recover from natural disaster in many ways. They are proactive in attempting to get things back to normal as quickly as possible, with no better example than the speed at which Tokyo’s seemingly demolished airport was up and running again.

Andrew Marshall (c)