Nerves fray as aftershock rocks Japan

TOKYO, Japan — One month after a 9.0-magnitude earthquake struck off the northeast coast of Japan, triggering a tsunami and near nuclear meltdown, another earthquake has hit Fukushima prefecture, further fraying the nerves of the Japanese, many of whom had just begun to return to their homes.

The 7.0-magnitude aftershock came as economists began to assess whether the enormous damage wrought by the disaster could send Japan back into a recession or fiscal crisis, or if a speedy reconstruction and recovery effort might actually boost the country’s economy in the long term.

To mark the one-month anniversary of the disaster, Japan observed a minute of silence at 2:46 p.m. on Monday in honor of the 27,475 people who have so far been confirmed dead or missing.

Two and a half hours later, the huge aftershock again rocked the country, where 150,000 people are still living in shelters. News stations that had been running specials on the ongoing recovery operation quickly shifted to images of shell-shocked refugees holding onto walls as buildings shook violently.

The aftershock also caused external power to be cut from three reactors at the stricken Fukushima Daiichi nuclear power plant, leaving workers — who had been evacuated when the earthquake warning was issued — to rely on water from fire truck hoses to cool the unstable facilities for about an hour.

The operator of the plant, Tokyo Electric Power Co (TEPCO), later announced that power had been restored and that there had been no deterioration of the situation.

With more large aftershocks likely, however, concerns remained high that the Fukushima plant, or another nuclear plant in the country, could again become unstable. External power was also cut to the Rokkasho nuclear storage facility and the Onagawa power plant by a 7.4-magnitude aftershock on Thursday.

Aside from safety issues, a loss of electricity could have serious implications for the Japanese economy, which is already now burdened by disrupted supply chains and a massive recovery effort.

According to a report by Mikihiro Matsuoka and Seiji Adachi, senior economists at Deutsche Securities Inc., the Tokyo-based investment banking arm of Deutsche Bank, if the country’s supply of electricity falls 1 percent, so will its GDP. The economists predicted the lack of electricity combined with the other effects of the disaster would cause the Japanese economy to fall into a recession, with an estimated contraction of about 2 percent for this year alone.

Others analysts, however, are more optimistic. The reconstruction effort, they said, might help boost business and jumpstart the economy by the end of they year.

“The initial impact of the disaster is expected to be a 5 percent drop in GDP for the April to June quarter,” said Takashi Shiono, an economist with Credit Suisse in Tokyo. “But it should recover somewhat, by around 0.8 percent in the next quarter.”

The Economic Research Institute at Dai-Ichi Life reported similar findings, but did not expect the road to economic recovery in Japan to be an easy one.

“There will be some increased demand later in the year,” said Hiroshi Udo, the institute’s director. “The problem is that because of the production shutdowns, many companies won’t have the stock to meet it.”

“It’s a similar problem for exporters. They should benefit from the weaker yen [which has fallen against the dollar since the disaster], but only if the production bottlenecks are cleared,” he added.

Shiono said that the hardest hit sector would likely be the automobile industry. Its supply chains, he said, were largely disrupted by the earthquake and tsunami.

“Some of these components are sourced 100 percent from the Tohoku [northeast] region, so there are bound to be shortages,” he said.

The enormous clean-up and rebuilding operation that will be required along the northeast coast might provide some economic stimulus, but it will also likely put further strain on the country’s creaking public finances.

With a national debt already about 200 percent of GDP — a rate that is better only than Zimbabwe’s — the government doesn’t have much room to maneuver.

“We calculate the recovery effort will add 1.2 percent to the deficit. This doesn’t sound like much but if it continues for a few years, that would add around 5 percent,” Shiono said. “The current levels of debt are already unsustainable.”

Shiono also said that once the brutal heat and humidity of the Japanese summer kicks in, the need for air conditioning would rapidly increase the demand for electricity, putting extra pressure on an already overburdened power grid. Although TEPCO has said it can avoid rolling blackouts even without power from the Fukushima Daiichi nuclear plant, shortages look inevitable.

If aftershocks like Monday’s continue, and other power plants are affected, things could only get worse.