UK firms feel after-shocks of Japan turmoil

The economic impact of the disaster in Japan is already being felt around the world, from carmakers to handbag makers...

by James Taylor
Last Updated: 19 Aug 2013
Notwithstanding the incalculable human cost, this week's horrific disaster in Japan will also have an enormous economic impact on the country - analysts at BarCap reckon this could be as much as £115bn, equivalent to 3% of its GDP. But in this interconnected globalised world, the effects will also be felt much further afield. As the world's third-biggest economy, Japan is a key market for, and supplier to, lots of overseas industries. We're already seeing the knock-on effects in the UK - Toyota UK has imposed an overtime ban on its UK plants, and Burberry shares have plummeted because of the likely impact on sales...

Japanese carmakers are responsible for about a third of all the cars made in the UK, so it's no surprise that this industry is likely to be hit harder than most. Lots of the necessary components to make these cars come from Japan, and you only need to be without one of them to scupper the whole process. With most of the factories in Japan shut down in the wake of the disaster, this could lead to supply issues further down the line. After gradually raising hours over the last year or so, Toyota has just banned overtime at two of its UK plants, in Derbyshire and North Wales, presumably while it works out what the impact of the disruption will be.

Motor vehicles and parts are one of Japan's biggest exports, but it's by no means the only industry where Japan plays a hugely influential role in the global supply chain. The same is also true of technology components: we could see a shortage of things like semiconductors, silicon wafers and LCD glass, which are of course essential to so many electronic devices these days. So tech companies around the world are likely to see prices go up in the coming months - which may mean the consumer does too (unless they decide to take a hit to their margins).

Japan is a massive market for exporters too, of course. Take Burberry for example: Japan accounts for about 7% of its sales, so it's no wonder that the British firm lost over 5% of its market value yesterday. After all, a catastrophic event like this is bound to limit people's appetite for expensive striped luxury goods, at least in the short term.

But their problems arguably pale into insignificance compared with those of Japan itself. With its national debt already running at more than 200% of GDP, will it be able to raise the money it needs to cover the huge costs of post-disaster reconstruction?

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