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Japan

Japan

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Published by: Lipi Sharma on Sep 16, 2011
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09/16/2011

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Japan's economy heads into freefall after earthquake and tsunami

Bank of Japan to announce emergency 'quake budget' as blackouts and closures risk pushing country into recession
The full extent of the economic impact of Friday's earthquake and tsunami is becoming apparent , with hundreds of factories shut acrossJapan, warnings of rolling blackouts and predictions from economists that the disaster would push the country into recession. The Bank of Japan is preparing to pump billions of yen into the economy when it announces an emergency "quake budget" on Monday 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 remain 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, has 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.

production is likely to decline and there is also concern that the sentiment of firms and households might deteriorate. Automakers said some plants experienced damage that was not extensive.000 soon. said it was likely the economy would be pushed into recession.’’ the central bank said in a statement.Daiwa Capital Markets. with exports particularly badly hit. Assembly plants for Japan’s big three automakers — Toyota. After the initial disruption.000 mark.3% this quarter but now expect a second successive quarter of negative growth. To try to stabilize the markets and prop up the economy. The Nikkei fell 8% in the first five days after that earthquake but then rose by 5% in the next 10 days. which would represent a 2. is expected to post large falls when it reopens as the scale of the damage becomes clear. . are likely to continue falling this week. ‘‘The damage of the earthquake has been geographically widespread. Japan is the one of the world's largest importers of oil but demand is likely to drop as industrial activity falters. in an effort to preempt a further deterioration in the economy. and thus. Oil prices. which is already the largest among advanced economies. The huge cost of rebuilding the affected areas will push up Japan's public debt. Some analysts warned it could tumble below the psychologically important 10. in 1995 near Kobe. for clues.7% on Friday. the central bank earlier Monday poured money into the financial system. Strategists have been analysing the economic impact of Japan's last major earthquake. with one analyst at Toyota Asset Management telling Reuters it could fall below 9.7% drop from Friday's close. the Japanese-owned bank. Economists had expected growth of 0. but damage to suppliers and to the nation’s transport system and infrastructure was expected to affect their ability to make and move their products. which fell by 3% on Friday. Honda and Nissan — were closed on Sunday and planned to remain closed on Monday. Toyota said that its factories would be closed at least through Wednesday. for the time being. the economy grew by more than the trend growth rate at the time for 1995 and 1996 The Bank of Japan. The Nikkei index. eased monetary policy on Monday by expanding an asset buying program. which fell 1.

Those financial flows back into Japan will drive up demand for the yen. is now even more uncertain. Wien. the yen rose about 20 percent against the dollar over a few months. especially at the damaged nuclear plants. economists say. according Byron R. Rebuilding costs that could run in the tens of billions of dollars may require Japan to make tough decisions about government spending. as Japanese investors bring money back from overseas to shore up their savings and provide money for the rebuilding campaign. chief economist of Moody’s Analytics. vice chairman of Blackstone Advisory Partners. but. it could harm Japanese companies and affect consumers abroad. so they will be smaller buyers of our debt securities. The yen is expected to strengthen against the dollar. though he predicted that the rebuilding efforts in the aftermath of the quake would help provide a rebound in the second half. Mr. Economic activity in Japan contracted in the fourth quarter of 2010. economists say. may make cuts in government spending elsewhere a necessity.” If energy curbs and infrastructure damage hinder production in a significant way. economists and analysts say. Its ratio of government debt to the economy’s annual output is already at 200 percent. for example. including fuel-efficient cars like the Toyota Prius and the Honda Fit. But some popular models are still made in Japan for export. Japanese automakers have shifted much of their manufacturing overseas in recent years. After the Kobe earthquake in 1995. So reconstruction. Disruptions in exports could hurt sales at a time when rising gasoline prices have increased demand for those cars in the United States. increasing its value. the highest among industrialized nations and far higher than in the United States. . One ripple effect could be a reduction in demand for United States Treasury bonds. The Japanese have been large buyers of United States bonds. already problematic. “they are going to be using their money to rebuild. Activity may well shrink for the first half of this year. and the country was overtaken by China as the world’s second-largest economy. because the dimensions of the disaster remain unclear. after the United States. Zandi said. adding pressure to American interest rates. Wien said. Mr.Japan’s economic outlook.” said Mark Zandi. “The Japanese economy threatens to suffer another bout of recession.

head of global economics at Societe Generale.” . Tsunami | The World Reporter: News Opinion and Analysis http://www. Hannover Re and Munich Re were all down more than 4 percent. “This may cause phenomenal shortages in the spot market. The daily spot market for certain kinds of semiconductor chips will most likely feel the impact soonest. Bombay Stock Exchange or Sensex (India) plunged by 0. a semiconductor research firm. “There will be a lot of nervousness. Most high-tech goods these days are produced through carefully orchestrated procurement and manufacturing networks that combine parts from around the globe. Some of the major re insurers like Swiss Re. Handy said. The effect of Japanese market was seen on European and other Asian markets as well.theworldreporter. an analyst at Objective Analysis. Source: Impact on Economy after Japanese Earthquake. Even temporary shortages can drive up prices sharply for a while.com/2011/03/impact-on-economy-afterjapanese.html#ixzz1QsbjYpDv Electricity is critical for Japan economy The same thing also disclosed by Michala Marcussen.” said Jim Handy. whereas Nikkei (Tokyo) stock fell down nearly by 5 percent at the other instant. “If electricity production is damaged sustainably.3 percent against the US dollar at an instant.84%. The yen fell by 0. Doing so could add a day or two to the time required to finish a batch of chips. often shipped on tight daily production schedules. electricity power is a critical factor.” Mr. Shutting down of nuclear power plants and oil refineries and many other industries have caused a huge loss in one single day. and it is also a leading maker of liquid crystal displays used in consumer electronics products. it will affect the Japan economy on long term.Japan is also a crucial global supplier of electronic goods and parts used in an array of industrial and consumer goods. The country produces an estimated 40 percent of the lightweight chips used to store data in smartphones and tablet computers.” Companies with chips that have gone only part way through the manufacturing process would most likely have to backtrack a step and rework those chips when the power returns. “You’re going to have productivity losses. According to him.

due to the global financial crisis and the period of economic stagnation. whether this could push Japan economy out of deflation crisis and enable to get back on track. Insurance and analysts have stressed that it was too early to accurately assess the damage caused by the Japan strongest earthquake. Reconstruction after the Kobe earthquake has cost U. $ 100 billion. “The BOJ is likely to take bold steps to stabilize the financial system and the possibility to return to quantitative easing or zero interest rate policy. However. $ 183 billion to pump into the financial system to ensure sufficient cash.” . Currently. In contrast. However. The bankers reviewed the policy today. of which U.Sharon O’Halloran. However.” said Naomi Hasegawa. a spokesman for Swiss Re says can not say what impact could happen. the largest among developed countries. or will even worsen?” Policy makers face an important task to revive the Japan economy. partly funded by the insurance company. senior fixed-income strategist at Morgan Stanley Mitsubishi UFJ Securities in Tokyo.3 Richter Scale earthquake on last February 22.S. the Bank of Japan has pledged U. Rolf Tanner.S. $ 3 billion paid byinsurance. Analysts reflect on the Kobe earthquake in 1995 on instructions how Japan economy would react to the earthquake and tsunami. where the country’s central bank cut interest rates by half a percent to 2.6 billion. the region that much more to the affected industry sectors. the nuclear facilities in the area was quite influential and the estimated insurance payments for these disasters ranging from U. so that Japan has limited space to cut again the interest rates. Shares in several Japanese construction companies have increased significantly from anticipation to projects that benefit them.S. $ 14. reaching 12% of GDP according to estimates from Merrill Lynch Bank of America. The work of rebuilding will mean a big explosion in development expenditure. Contrast with New Zealand. Political leaders in Japan have pushed for an emergency budget when the government is fiscally constrained by public debt which is twice the size of the economy. and economists expect the most likely outcome of the meeting as an expansion of fund raising by 5 trillion yen to buy assets such as government bonds. professor of political economy at Columbia University said “The question is. “It will take some time before we can determine the estimated losses in the field. some parties said the scale of the disaster will prompt the central bank took further steps. In 1995.6 to 34. not only because the scale of the disaster but because of limited choices.5% on last week to support today’s economy after hit by 6. other economists say that the disaster could spur Japan economy growth.S. the affected area recently only about 7%. Bank interest rates in Japan is almost reach the zero level.

a senior strategist at SMBC Friend Securities.com/doc/53625912/Impact-on-Economy-After-JapaneseEarthquake-Tsunami-DP http://www.” A strong yen.Toshihiko Matsuno.blogspot.com/2011/03/economic-impact-of-japanearthquake.rischiocalcolato.scribd. Japan's debt burden is among the highest and is pegged at around 200 per cent of its yearly economic output.pdf . it took about a week to get an overall picture of the extent of damage before we could predict the Japan economy. falling exports.html http://www. and Japan's mounting debts are adding more burden to the $5 trillion economy.it/wp-content/uploads/2011/03/Economic-impact02132011. Imp link is http://liberalsprinkles. said “When we look back at the Kobe earthquake.

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