'Dawn' in The Land of the Rising Sun

As I write this, Japan's military CH-47 Chinook helicopters began spraying tonnes of sea water on reactors 3 and 4 at Fukushima, 220km (140 miles) from Tokyo; water cannon had also joined in the operation from the ground.

Japan was hit by a, now revised, 9.0 magnitude earth quake on Friday afternoon local time. This is the most severe earth quake, this quake prone country has ever witnessed. And just as Japanese thought that they have survived, a tsunami with 30 feet high waves hit them. The tsunami was so strong that the islands of Hawaii, which are 4,000 miles away, were hit by the 7-8 feet waves as a result of the same tsunami. California also witnessed waves of almost 5 feet because of the tsunami. 

As if this was not enough and before Japanese could start looking for there loved ones, they were given the news that one of the nuclear reactor wasn’t cooling off and there might be a radiation risk. Japanese are far too familiar with the nuclear radiation, for they are the only ones who were directly targeted with the nuclear weapon. It has only been 60 years. Could history be so cruel that it will repeat one of the ‘darkest’ days of human past? Since last four days engineers are trying to cool the fuel rods with the help of sea water. News hasn’t been good, but important thing is there is no ‘bad’ news either.

I know considering the human tragedy that Japan faced and what they ‘might’ face, talking about economy could be the most insensitive thing. But I need to comment on what Mr. Martin Wolf of FT wrote, about how Japan can ‘easily’ overcome the losses that it has faced from earth quake and tsunami (We hope for the best and so nuclear disaster is not taken into consideration).

Goldman Sachs estimated that the total cost of damage to buildings, production facilities and so forth would be around Y16,000bn ($198bn). That would be 1.6 times the destruction from the 1995 Hanshin earthquake, which devastated Kobe. If this sum were to be correct, the cost would be 4% of GDP and less than 1% of national wealth. It seems extremely unlikely that the impact will be of the same magnitude as that of the global financial crisis that drove down Japan’s GDP by 10% between the first quarters of 2008 and 2009. The fiscal outlays related to the Kobe earthquake amounted to Y5,200bn ($64bn) over five years. If the cost to the government after the current earthquake reached 1.6 times that earlier cost, the total would be about $100bn or 2% of a year’s GDP and an annual average of 0.4% of GDP over five years. The OECD forecasts Japan’s gross government liabilities at 204% of GDP at the end of 2011 and net liabilities at 120%. The government fiscal deficit is also forecast at 7.5% of GDP this year. Against such vast numbers, the prospective cost of reconstruction after the earthquake looks almost non-issue.

Add to this fact, the Japanese private sector runs a financial surplus large enough to cover the government’s deficit and export substantial capital abroad. Japan as a whole is the world’s largest creditor, with net external assets equal to 60% of GDP. In short, the assets of Japan’s private sector vastly exceed the liabilities of its public sector.

Just as choppers are poring tones of water on the nuclear reactor, as rude as it may sound, but Japan can absorb the cost related to the current natural disaster. News from economic front is good; hopefully we will have the same positive news from the tsunami-hit Fukushima Daiichi nuclear plant.

Refernces:
Wolf, Martin “Japan can meet the earthquake test” www.ft.com. Published: March 15 2011 22:06