Japan’s government estimated the damage from this month’s record earthquake and tsunami at as much as 25 trillion yen ($309 billion), an amount almost four times the hit imposed by Hurricane Katrina on the U.S.
The destruction will push down gross domestic product by as much as 2.75 trillion yen for the year starting April 1, today’s report showed. The figure, about 0.5 percent of the 530 trillion yen economy, reflects a decline in production from supply disruptions and damage to corporate facilities without taking into account the effects of possible power outages.
The figures are the first gauge of the scale of rebuilding Prime Minister Naoto Kan’s government will face after the quake killed more than 9,000 people. Japan may set up a reconstruction agency to oversee the rebuilding effort and the central bank has injected record cash to stabilize financial markets.
Damages will probably amount to between 16 trillion yen and 25 trillion yen, today’s report said. It covers destruction to infrastructure in seven prefectures affected by the disaster, including damages to nuclear power facilities north of Tokyo. Wider implications on the economy, including how radiation will affect food and water supply, are not included in the estimate.
Bank of Japan board member Ryuzo Miyao said today that it may take more time to overcome the damage of the quake than it did after the 1995 disaster in Kobe, western Japan.
Effect ‘Could Linger’
“The ability to depress economic activity from the supply side is larger than the Great Kobe earthquake and we must bear in mind that these effects could linger for some time,” Miyao said in a speech in Oita, southern Japan. “The short-term effects are not insignificant.”
Today’s report didn’t include specific forecasts for how the damage would affect GDP, which economists at Morgan Stanley MUFG Securities Co. forecast may contract as much as an annualized 12 percent in the second quarter. GDP expanded at a 3.2 percent rate in the second quarter after the 1995 Kobe quake.
”We need to bear in mind that the risk that stagnation in production will linger due to the effect of the earthquakes,” Economic and Fiscal Policy Minister Kaoru Yosano said at a press conference in Tokyo today. “We could see the biggest impact come from the power-supply issues that are affecting production.”
Tokyo’s power supply may fall 20,500 megawatts short of summer demand, or 34 percent less than the peak consumption last year, according to figures from Tokyo Electric Power Co. The utility is capable of supplying 37,500-megawatts and plans to add about 2,000 megawatts of thermal generation by the end of this month, company spokesman Naoyuki Matsumoto said by telephone today.
The government had previously projected growth of 1.5 percent for the year starting April 1 after growing an estimated 3.1 percent this year.
Bank of America Merrill Lynch cut its GDP projection for fiscal 2011 to 1 percent from 1.7 percent. RBS Securities and Nomura Securities Co. have also cut their forecasts while noting that the economy will still expand because the rebuilding will spur demand and help offset damage on growth in the period.
Rebuilding efforts in fiscal 2011 could push up GDP by 5 trillion yen to 7.75 trillion yen, the government said today. Japan’s growth will return to normal “very soon” as reconstruction work starts, Justin Lin, the World Bank’s chief economist, said in Hong Kong today. At the same time, some are worried the boost won’t come soon enough.
“My biggest concern is that a positive impact from reconstruction may take a while to materialize,” said Akiyoshi Takumori, chief economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “This earthquake and tsunami destroyed infrastructure and that will delay a recovery in production, a major driving force for the economy.”
The government maintained its assessment of the economy for March as the economic indicators released before the earthquake showed exports and production rebounding, while also voicing “concern” about the impact of the temblor on the economy.
“Although the Japanese economy is turning to pick up, its ability to self-sustain itself is weak,” the Cabinet Office said in a monthly report.
Future assessments will need to address damage to much of the northeast’s economy, and the disruptions to electricity and distribution systems that’s spread south to Tokyo and beyond. Toyota Motor Corp. said yesterday it will halt car assembly in Japan through March 26. Sony Corp. (6758) said it shut five more plants.
Koji Miyahara, president of the Japanese Shipowners’ Association, said today exports may decline for six to 12 months after the earthquake, adding that the disaster won’t affect the industry in the longer term as reconstruction efforts take hold.
The death toll following the disaster rose to 9,408 as of 12 p.m. local time, according to the National Police Agency. Workers were still struggling to gain control of the crippled nuclear power plant 220 kilometers (137 miles) north of Tokyo.
Kan is now faced with the challenge of finding ways to pay for the damage to the economy. BOJ Governor Masaaki Shirakawa has reiterated a reluctance to underwrite debt from the government and said today that nation’s fiscal situation is “very severe.”
Cash at Record
A separate report today showed record cash holdings by Japanese households may help insulate them from damage from the quake. Households kept 820.7 trillion yen ($10 trillion) in cash last quarter, the biggest amount since the Bank of Japan began tracking the data in 1997, according to a central bank report released today in Tokyo.
In the wake of the devastation of World War II, Japan’s government set up the Economic Stabilization Board in August 1946. Among its duties was to ration commodities and oversee the revival of the nation’s industries.
To maintain short-term financial stability, BOJ policy makers have added emergency cash every business day since the quake. Lenders’ current-account balances at the central bank yesterday exceeded the 36.4 trillion yen record set in March 2004, when officials were implementing so-called quantitative easing measures to counter deflation. Deposits have climbed from about 17.6 trillion yen on March 10.
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