Crisis may cost Japanese economy up to $183 bn

Although the cost, both economic and human, may well rise if Japan is unable to contain the risk emanating from its stricken nuclear power stations, analysts have already begun piecing together the impact of the unprecedented Tohoku earthquake on the world’s third largest economy.

The key number is that the massive tremor may have cost the debt-ridden Japanese economy up to $183 billion (¥15 trillion) or around 3 per cent of the country’s gross domestic product (GDP), according to initial estimates by Barclays Capital; Bank of Japan (BoJ) yesterday offered to injected a similar amount into the economy. The country’s current debt-to-GDP ratio stands at over 200 per cent.

The four heavily affected prefectures — Iwate, Miyagi, Fukushima and Ibaraki — account for between 6-7 per cent of Japan’s GDP, Barclay’s Kyohei Morita wrote, adding that the impact on these provinces would spread “to other regions and, by extension, the Japanese economy as a whole”.

Another estimate on property losses, as per catastrophe modelling firm AIR Worldwide, indicated that insurers may have to foot a bill between $ 15-35 billion. Provisional approximations put the number of destroyed building at 2,837, half-destroyed at 2,103 and 38,877 partially damaged homes. 

Stalling manufacturing
Among the immediate challenges that Japan’s industrial sector faces is the ongoing rationing of power, prompted by malfunctions in some nuclear power generation installations that in totality fulfil up to 30 per cent of the country’s electricity requirements.

Tokyo Electric Power Company (TEPCO), Japan’s largest electricity utility that also runs the damaged Fukushima nuclear plant, has imposed rolling blackout across the country for as much as three hours every day starting March 14. The damaged facilities comprise 20 per cent of Japan’s total nuclear power generation.

Subsequently, electronic giants Sony and Toshiba have cut down on production. While Sony said that it would respond to “widespread power outages by voluntarily suspending operations at several sites”, Toshiba said that it was “operating only those of its businesses related to provision of essential services required for social and economic activities.”

“This decision extends to Toshiba Group companies and covers production facilities and business premises in areas where TEPCO plans controlled power outages,” the company added in a statement.

Japanese carmakers including major global players such as Toyota, Nissan and Honda kept a number of facilities closed on Monday, with the latter two having already issued advisories for keeping certain production activities suspended till the end of the week.

“In terms of assembly operations only Tohoku area is home to only a relatively small concentration of vehicle output: Toyota’s three assembly plants represent perhaps 7 per cent of domestic capacity; Nissan’s Tochigi plant is 15 per cent of Japan capacity; Honda has its main R&D facility but no assembly,” reported Macquarie analyst Clive Wiggins.

Honda and Toyota have already pushed back their plans in India for a new vehicle and a new facility, respectively.

Commodity demand
Moreover, there could be further pressure on the commodity sector, which has been reeling from a series of catastrophes this year including the floods in Australia. With power generation far from optimum, Japan is likely to hike imports of Liquefied Natural Gas (LNG) and coal.

“We expect shutdown of the TEPCO facilities will prompt a sharp lift in fuel oil and LNG; this is based simply on how the closure of 17 of Japan’s 54 reactors in August 2002 for safety inspections, prompted a 10 per cent lift in Japan’s LNG demand,” UBS said in a report.

Japan is the world’s largest importer of LNG, and suppliers worldwide are already bracing for prices to harden.

Similarly, the East Asian nation, which is the world’s largest buyer of seaborne coal, could also look to import more of the fuel as 30 per cent of its power generation is coal fed.