As quake toll rises, can Japan start working again?

With the human cost of the earthquake still mounting, Japan already faces its next challenge: getting back to work.

by Andrew Saunders
Last Updated: 18 Mar 2011
As if things weren’t bad enough in Japan after last week’s earthquake and tsunami, it’s becoming clear that the economic impact of the disaster – the country’s worst on record – is going to run and run.

The quake has officially claimed around 1,600 lives so far, but that number is expected to rise substantially – possibly by a factor or ten or more. And of course there are the ongoing crises at the Fukushima Dai-ichi nuclear power plant, which has already led to the evacuation of getting on for 200,000 people, and where a second explosion was reported this morning.

The scale of the damage to Japan’s economic and commercial infrastructure is only just starting to emerge. For starters, none of Nissan’s or Honda’s Japanese factories – which between them produce around 150,000 cars a month – will be operational today. And there is the ongoing crisis at the Fukushima Dai-ichi nuclear power plant which has already led to the evacuation of getting on for 200,000 people, and where this morning a third reactor was revealed to be at risk of at least partial melting of its core.

Markets have the jitters, understandably. The Nikkei index plunged 6% on opening this morning, and the interest on Japanese government bonds rose. The Bank of Japan has announced the injection of an unprecedented $265bn into the nation’s economy, in an effort to maintain financial stability. Credit Suisse is already predicting that the economic cost of the disaster will total some $170-$180bn. And it’s not as if Japan were in exactly rude economic health before all this began: growth has been stagnant there for over a decade. Initial estimates that the commercial effects of the quake might be less severe than those of the smaller Kobe quake in 1995 – which itself ushered in the nation’s current protracted era of economic gloom – seem to have been optimistic.

Re-starting production will depend on many factors. Damaged facilities must be repaired, and workers are being told to stay at home to reduce strain on struggling transport systems. More critical, however, are supply chain issues. Modern ‘just-in-time’ manufacturing depends on frequent and precise deliveries of a whole range of sub-contracted components to final assembly plants. It’s likely to take some time before such efficient but fragile systems can get back to anything approaching normality.  

Then there’s the power question. 11 nuclear reactors at four plants have shut down, reducing Japan’s total electricity generating capacity by over 15%. Rolling power cuts have been introduced in Tokyo and elsewhere, with warnings that such power rationing may continue for weeks or even months rather than days. Hardly good for business.

And with the outcome of the crisis at the Fukushima plant remaining in the balance for some days yet, the incident will inevitably re-ignite the debate over nuclear power in Japan. Following cooling failures and explosions at reactors 1 and 3, a short time ago came the news that reactor 2 is also in trouble, a lack of coolant leading to exposure of the core and the risk of meltdown. If – and it’s an increasingly big if - the steel pressure vessels and concrete primary containment walls of the damaged reactors remain intact, a Chernobyl-style catastrophic radioactive leak is unlikely. But it could happen, and even the best-case scenario puts the incident up there with the worst of the rest of civil nuclear accidents, Windscale and Three Mile Island included. The 40 year old plant – and possibly others less badly damaged – will likely never re-open, leaving permanent gaps in the power supply to be filled.

So, on the face of it things are pretty grim. But there is a bright side all the same. For starters, Japan is supremely well-prepared for earthquakes. However bad this one is, a similar event in any other country would probably have been a lot worse.

And it’s also just possible that the sort of wholesale reconstruction and re-invention that a disaster of this magnitude brings with it might prove to be sufficient stimulus to get the Japanese economy growing again. They could certainly do with a bit of good fortune right now.
Economy Misc

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