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Monday, March 14, 2011

A human, more than an economic tragedy

Much of Japan's car and electronics industries have ground to a halt and experts say the economic fallout is unknowable.

Futures trading suggests Japan's share market will open this morning down only 2 per cent while investors take stock.

"We are looking at a human tragedy much more than an economic tragedy," said Deloitte Access economist Chris Richardson. "But the harder it hits confidence, the worse will be the knock-on effects.

Toyota, Honda, Nissan and Sony will close between them a total of 28 plants out of concern for their workers many of whom have been stranded without transport since Friday.

The supply of flash memory chips is also at risk as a result of power disruptions. Japan accounts for between 15 and 40 per cent of global production.

Mr Richardson said while production could recover as it did after the 1995 Kobe earthquake... a hit to confidence might dent Japanese demand for Japanese goods meaning it did not return to its previous level.

"Much of Japan's manufacturing is for Japanese citizens. If they don't feel like buying, Japan will want less of our coal and iron ore," he said.

At the same time the loss of nuclear power would push up demand for Australian coal and natural gas.

"We do not know what we do not know about the damage that has been done," wrote Carl Weinberg, chief economist at High Frequency Economics in a note to clients. "Experience tells us the economic shock can be, and likely will be, much bigger than anyone can imagine."

The Yen has been climbing as locals have begun shifting currency back home, something that also happened after the Kobe earthquake.

The Bank of Japan is meets today and is expected to offer several trillion yen (tens of billions of dollars) to the money market to boost confidence. It is unable to cut its official interest rate which is already zero.

Figures released just before the quake showed Japan's economy shrinking an annualised 1.3 per cent in the December quarter.

"The timing could not have been much worse," said London-based Capital Economics in a research note. "A large part of the reconstruction costs will ultimately have to be met by the government which is already struggling to bring public debt under control."

Japan government debt is already 200 per cent of gross domestic product, the highest industrial world. Rebuilding is expected to boost that by 2 to 10 percentage points.

Published in today's Age

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