“This is certainly the worst thing that can happen in Japan at the worst time,” Roubini told Maryam Nemazee on Bloomberg Television’s “Countdown” in London today. “There will be fiscal stimulus to reconstruct but Japan already has a budget deficit of close to 10 percent of” gross domestic product and an aging population.
The Bank of Japan (8301) pledged to ensure financial stability after the magnitude 8.9 earthquake struck off the coast of Sendai, sparking a tsunami. Japanese stocks declined in Tokyo today. The central bank, which keeps its benchmark rate at zero, had last month said the world’s third-largest economy is set to recover from a fourth-quarter contraction.
“In the short term, when you have a shock like this” it tends to produce “a weakening of economic activity,” Roubini said. “You have a slowdown in output in the same quarter but over time, if there is a massive amount of fiscal stimulus, there could be an economic recovery over the near term.”
Japan’s Ministry of Finance said it’s too soon to gauge the economic impact of the earthquake that caused damage across the country’s east coast. The MSCI Asia Pacific Index dropped as much as 1.8 percent today.
“Certainly it is a negative for their stock market given that it is a destruction of wealth,” said Roubini, who is also co-founder of Roubini Global Economics LLC. “Also the effects on confidence are going to be significant.”