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Japan earth quack impact on world economy

History of Japan Earth Quack:-

Japan was hit by an earthquake of magnitude 8.9 on March 11. This

massive earthquake led to major human tragedy in Japan killing more
than 30000 people, leaving many injured, and many other still missing.
The earthquake and the tsunami also struck nuclear installations in
Fakushima Dai-chi power plant. Because of disruption in the power
supply, the coolant cannot be supplied to the nuclear reactors in the
required amount, which raises the risk of radiation leak. Already traces of
radiations have been detected in some of the food items and the water
in Tokyo, which is located 220 KM south of the Fakushima.

Impact on Japanese Economy - Since Japan meets about 30% of its

energy from nuclear based power plant, power supply to most of the
parts in the country has been affected leading to closure of many
factories. There has also been widespread damage to the infrastructure
because of which there has been supply disruptions of many of the
critical raw material components. Most of the automakers including
Toyota, Honda, and Nissan have closed their plants for the lack of raw
materials, and the reduced power supply. Manufacturers of
semiconductors, LCD displays, batteries etc have also shut down their
plants for at least next 2-3 weeks. Some of the major ports of Japan
have been affected by the crisis impacting both the exports and imports
based industries in the country. According to one estimate, cost of
reconstruction is expected to cross $300 Billion. Japan will find it difficult
to fund this construction because of its high debt which is already 200%
of its GDP. Also the country has witnessed lacklustre growth over last
two decades, and this earthquake triggered crisis might further push
Japanese economy in downward spiral.

Impact on World’s economy

Japan is the third largest economy in the World, after US and China. It is
also the second largest buyer of US funds. Since Japan will need money
to fund its reconstruction, it might cash in the US bonds. This will force
US fed to buy these bonds, and which will induce liquidity crunch in the
US market. Similarly Japanese investment firms have made lots of
investment across world’s capital markets. The pull out of the Japanese
fund might lead to fall in stock prices in these markets in short term. The
other major impact of Japan’s earthquake will be on the crude oil. Since
most of the nuclear power plants of Japan have went offline, Japan will
depend more and more on crude oil to meet its energy needs. Japan has
number of oil fired power plants, and to meet its energy needs, it might
buy more oil from the world market. The crude oil prices, which were
already on upward trend, will see a further spike as a result of this. The
rise in crude oil prices will impact the world’s economy in short term.
Japan is the major producer of many of the items including auto
components, semiconductors, LCD displays etc. Disruptions to the
production of these major items will lead to the supply chain disruptions
of these items in the world market. This will delay the production of high
end gadgets like smart phones, iPod’s, LCD TV, laptops etc. and cars.
This will make a dent in the manufacturers’ profit.
 Impact on India economy

Indian stock market dropped by 0.8% on the news of Japanese

earthquake. But the market recovered next day. Killer earthquake which
hit Japan is expected to have a marginal impact on the Indian economy.
Most direct impact will be the pull out of Japan’s investments in the
Indian capital market. Japanese investment firms will draw money from
the Indian market to fund the Japanese reconstruction. This will have a
negative impact on the stock market in short term. Japanese have also
made investment in number of important infrastructure projects in the
country such as Delhi Metro, Delhi Mumbai corridor etc. These projects
might see delay because of lack of availability of funds. Surge in the
crude oil prices because of increased demand of oil in Japan will also
impact the Indian economy which is already reeling under inflation.
Automobile companies will be negatively affected by the crisis, since
they depend on Japan for the supply of many of their critical auto
components. Also because of increase in the value of Yen (as a result of
lack of yen supply), there will be an increase in the cost of these auto
components. Japan’s refinery capacities have also been affected b+y
the quake. This will have positive effect on Indian petrochemical firms
such as Reliance. Indian IT industry will be marginally impacted by the
crisis, since most of the IT firms derive only 1-2% of their revenue from
Japanese market. Only IT firm which has high exposure to J0apan
market is Nucleus Software Exports which derives 30% of its revenue
from the country. Crisis will have a minor impact on Indian exports, since
Japan accounts for less than 3% of total Indian exports. Thus the recent
earthquakes which hit Japan will have marginal impact on Indian
economy