Japan's March 11 earthquake and tsunami will have an impact on its national economy, and how it will affect the global economy in turn. The area is at the risk of seismic activity: a 7.1 magnitude earthquake struck off the coast of Honshu on April 7, rattling residents and relief workers. Also, the world is still waiting to see how the crisis at the Fukushima nuclear power plant will progress. Containing the radioactive material could take months, the plant's operator's say. Traces of radiation have been found in a variety of agricultural products, including dairy and spinach, as well as in tap water of Tokyo. With several other nuclear reactors offline as a result of the quake and tsunami, the Tokyo Electric Power Co. has only been able to provide about 75% of their normal kilowatts, resulting in ongoing rolling blackouts in nine of Japan's prefectures. Japan's economy is largely export-based, but since the earthquake, manufacturing plants have been forced to shut down. Asian stocks took a dive, with the Nikkei index dropping 6% in a matter of days, though it has climbed steadily in the three weeks since the quake.
Some economists are optimistic, pointing at Japan's quick recovery from the 1995 Kobe earthquake as a model. The earthquake killed over 5,000 people,which caused an estimated $100 billion in damages, or roughly 2.5% of Japan's GDP. Within a year, however, Japan's economy had more or less recovered, though the Asian stock market took a little longer to rally. Political and financial institutions have taken action to avert a financial meltdown: in the days after the quake, the Bank of Japan announced it would be pumping billions of yen into the economy, as well as giving loans to financial institutions at extremely low interest rates.
Others, like Mohammed A. El-Erian, CEO of the investment company PIMCO, disagree. First, the damage of the March 11 quake and tsunami caused an estimated $200 billion, twice that of the Kobe quake. Japan's finances are also weaker: despite being the third largest economy in the world, Japan is no longer the economic engine that it once was. Japan's yearly debt is now twice that of GDP, 205%, compared to 85% in 1995. According to El-Erian, "This erodes the flexibility and ultimate effectiveness of fiscal responses." Also, the ongoing nuclear crisis in Fukushima has rattled confidence in nuclear power, not just in Japan but worldwide as well, driving up prices of renewable energy shares.
It is still too early to see the long-term impact that Japan's earthquake and nuclear crisis will have. Global commodity prices have been in flux since the disaster: crude oil, of which Japan is a large importer, dropped, while gold and copper prices rose. Agricultural products fell as well, unexpectedly. The crisis has disrupted global supply chains around the world, and Japanese manufacturers still haven't been able to resume production.
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