International money market and stock exchange also got heavily affected. Following speculations that Japanese central bank will issue government bonds to meet the reconstruction expenses, resettling and revitalizing the domestic economy, speculative demand of Japanese currency and the rate of exchange of Japanese Yen felt upward pressure with possible repercussion on deterioration of Japanese export on top of the domestic crisis. Japan’s Nikkei Index also experienced a surge of 3 percent. Consequently, the group of highly industrialized countries (G-7) in which Japan is also a member intervened in the currency market and controlled the upward spiral of the exchange rate of Japanese currency.
However, after two months of the disaster, the upward spiral of the exchange rate of Japanese Yen has begun again.
According to the latest estimate, the earthquake and tsunami have cost Japan US$310 billion. Another major earthquake that hit Kobe, Japan, in 1995 had cost the country US$118 billion. The reconstruction almost continued till 2001. This history implies that Japan will feel the repercussions of the recent blow at least for one decade.
IMPACT ON JAPANESE & GLOBAL ECONOMY
Japan was the second-biggest economy of the world until last year but has now moved to the third position after the takeover by the Chinese economy, although per capita income in Japan is almost three times higher as compared to China that is yet to graduate from the group of middle income countries. Despite its relative position in the global economy, Japan is the world’s biggest producer of electronic products, sharing almost 40 percent of the global production. Moreover, Japan is also the world’s biggest automaker. The energy crisis currently in Japan might have a severe setback on these two sectors.
The power shortage has caused the decline of production and export of Toyota, Hitachi, Sony, and Esan, the major Japanese automakers. If the problem in Fukushima Dai-Ichi power plant persists, Japan may face the shortage of at least 10 million kilowatts electric power this summer and may fuel economic slowdown not only in Japan but also in its major trading partners and eventually in the globe. To address these problems, it requires solving present energy crisis first. The policy Japan adopts in this connection definitely affects the global demand and supply of energy products.
Japan may face the shortage of at least 10 million kilowatts electric power this summer and may fuel economic slowdown not only in Japan but also in its major trading partners and eventually in the globe.
The effects will be seen not only on the bilateral front but also on multilateral assistance. Japan’s Official Development Assistance (ODA) contributed as the major share in the development assistance to the developing countries until 2001. In the aftermath of the crisis, Japan’s definitely needs to invest in its own territory, thus potentially it may minimize Japanese assistance to developing countries for some years. Furthermore, the pace of the global economic recovery may also suffer a setback because of the impact in one of the biggest economies in the world.
In order to meet the huge investment required in connection with the reconstruction of the earthquake and tsunami-affected region of Japan, Bank of Japan has announced 15 trillion Japanese Yen (US$184 billion) investment. This investment will be through the corporate sector and is expected to bring crowding-in effect in the tsunami-stricken Japanese economy. Moreover, the central bank has also decided to raise its investment in real sector economy from 5,000 billion Yen to 40,000 billion Yen. These initiatives are expected to maintain the desired level of liquidity in the reconstruction phase and prevent deflation in the domestic economy. Along with the effort to maintain the price level from falling downward and boost the investment, the interest rate has been maintained from zero to 0.1 percent post the crisis.
In the earthquake and tsunami affected regions, approximately 250,000 people have become homeless and 190,000 thousand houses have been destroyed. In the upcoming reconstruction phase, there might be demands for many unskilled and semi-skilled workers from developing Asian economies; however, the demand for skilled workers will most likely be fulfilled from Japan itself.
Despite this prospect of employment, it may not create much forward and backward linkage in the developing economies supplying labor because these prospects would die off along with the end of reconstruction phase. On the same front, in the construction of thousands of houses, Japan needs to import substantial quantity of timber. Traditionally, Malaysia, Indonesia, and Papua New Guinea have been exporting timber to Japan; however, these countries had suffered enormous deforestation problem during the 1980s and 1990s and that caused the decline in export in the 2000s. However, recent crisis in Japan has again caused the prospect of lumber export from these countries along with the possible consequence of deforestation. The existing trend of labor from developing Asian countries, including Nepal, flying to countries like Malaysia for work might therefore continue in the coming years too.
CHAIN EFFECT OF RADIATION THREAT
Next to the humanitarian loss, the earthquake and tsunami have created a serious threat of nuclear radiation. Atomic energy contributes approximately 35 percent of total energy supply in Japan, imported energy contributes 61 percent while the remaining 4 percent comes from local sources. Because of the breakdown of the Fukushima Dai-Ichi atomic power plant, an immediate power shortage has crippled Japanese economy. Moreover, radiation threat may control the expansion of atomic energy worldwide causing the rise in the price of petroleum products; this will boost the economies of the OPEC countries much like what happened during the global oil crisis of 1972 and 1979.
The impact of radiation has been observed in the agricultural products of Miyagi, Iwate and Fukushima prefectures, particularly in raw milk, broccoli, and leaf vegetables as compared to other farm products. Furthermore, failure in controlling the potential seepage of the radiation contaminated water to the Pacific Ocean will have direct impact on the export of the Japanese sea foods and the situation may persist for quite a long time.
Japan set the generation of atomic energy in priority since the global oil crisis in 1972; consequently, the installation of atomic plants got momentum and now there are altogether 55 nuclear reactors in Japan. The present crisis, however, was not the first problem in Japanese power sector. In 2007 as well, earthquake caused the closure of Kashiwajaki-Kariwa atomic plant after 21 months of its operation.
Following the atomic power crisis in Japan, North America, Europe and China have halted the expansion of atomic power generation. The US has a total of 132 atomic plants and European Union has 143 reactors in its 27 member countries. Once the problem erupted in Japanese nuclear energy, European Union has asked for the examination of all the atomic plants in its member states. German Chancellor Angela Dorothea Merkel has postponed the plan to add three more atomic plants in her country. China has also stopped issuing permissions to additional plant installations, impeded the work of the ongoing construction of 28 plants; and the safety standards of the operational plants are under examination. We have to wait and watch how this will affect the world’s energy market.
sanjaya_acharya@hotmail.com
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