Japan earthquake: The economic costs

Photo of Japan Earthquake aftermath (Image by Wikimedia user Yuichiro Haga (cc:by))

The earthquake in Japan could cost the economy more than $100 billion dollars.

By Mary Kay Magistad

As the death toll climbs and Japan reels from its massive earthquake and tsunami on Friday, Japan's stock market plunged on Monday by six. To keep up confidence, the Bank of Japan injected a record amount of money into the economy -- $183 billion.

The damage done by Japan's earthquake and tsunami was already staggering before factoring in the costs of disabled and overheated nuclear power plants. On Sunday, Japanese Prime Minister Naoto Kan called the situation the worst Japan has faced since World War II. "I have agreed that we will implement a managed black-out," he said.

The Prime Minister asked that industry conserve power -- private residences too. Japan gets almost 30 percent of its energy from nuclear power plants -- or did, before five were shut down, and two explosions occurred, one on Monday, at Fukushima.

That explosion prompted the aircraft carrier, the USS Ronald Reagan, to move farther offshore because of radiation concerns. Another reactor at Fukushima has lost its cooling capacity, and it's feared an explosion could occur there, too.

Knock-on effects

Beside the clear safety concerns, David Satterwhite, director of Fulbright Japan, said all this will have a knock-on effect. "What we have seen in terms of the nuclear power plant failures means that the electric power grid will have a rolling impact not just on blackouts here in Tokyo, but on the economy as well."

But not so much that it's crippling, Satterwhite said. "And I say that because no significant industrial plant has been damaged. The auto manufacturing plants and the downstream of parts and so on are disrupted at present, and there will be disruptions because of the electrical power grid. But I think in the long-term, the long-term impact on the economy is not going to be as serious as many fear."

Manufacturers take hit

For now, auto manufacturers have taken a hit -- some had suppliers in the quake-hit area, and Toyota suspended operations in all its manufacturing plants in Japan. But while auto stocks plunged Monday, construction company stocks soared -- once the dead are laid to rest and the debris is cleared, rebuilding will begin.

Prime Minister Kan offered encouragement on Sunday toward that end:

"In terms of this earthquake and tsunami, I am very confident the Japanese people will come together and overcome this difficulty."

And difficult it will be -- with thousands of people still unaccounted for and feared dead, with economic losses expected to surpass $100 billion, with disruptions in the supply chain and reduced production due to rolling brown-outs.

Still, if any country is up to the task of rebuilding -- Japan is. It's done it before, after World War II, with the help of the United States. It's got offers of help now from some 70 countries. All in, the Bank of Japan says it still expects a modest economic recovery this year.

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