Japan’s Earthquake Rebuilding May Revive Laggard Northeast

Japan’s Quake Rebuilding May Revive Laggard Northeast
Houses lie in ruin in a wasteland that was once a thriving coastal community after being hit by a tsunami following an earthquake in Ishinomaki city, Miyagi prefecture, Japan. Photographer: Robert Gilhooly/Bloomberg

Reconstruction from Japan’s record earthquake and ensuing tsunami may help revive a farming and manufacturing region that was already lagging behind the rest of the economy.

Job prospects in Miyagi, where an estimated 10,000 people were killed, were worse than in most of the nation’s 47 prefectures in January. Neighboring Iwate had been hemorrhaging workers to Tokyo, while Fukushima was becoming increasingly dependent on its remaining factories even as Japanese manufacturers move abroad to emerging Asian markets.

Prime Minister Naoto Kan’s government aims to compile a relief package as soon as next month, with the biggest opposition party calling for a 5 trillion yen ($62 billion) effort, about $5 billion more than South Korea’s 1997 bailout package. A new international airport at Sendai, better road and telecommunication links and incentives for businesses to move to the region could help foster a rebirth, economists said.

“This was a very tragic disaster for the entire nation, but there’s a way to get this reconstruction effort right,” said Akio Makabe, an economics professor at Shinshu University in western Japan. “All these roads and train tracks and facilities are going to be brand new.”

BOJ Efforts

At the Bank of Japan’s Aomori branch at the northern tip of Tohoku, staff members are still trying to estimate the scope of the damage to the area’s economy. The bank will need to replace banknotes damaged by the tsunami and fires, checking each one as it’s submitted, an official at the branch said on condition of anonymity as he’s not approved to speak publicly.

“We are struggling desperately to recover,” Yoshihiro Murai, Miyagi’s governor, said in an e-mail. “I am afraid it will take a few years to revive,” he said, after earlier saying the disaster was “far bigger than we prepared for.”

Blackouts and a lack of gasoline are hindering businesses from returning to normal, and also making it harder for the BOJ to gauge the impact of the disaster, the official said. Further south, the lanes headed from Fukushima toward Tokyo have been clogged with cars. On the night of March 15, an unbroken line of vehicles about 40 kilometers long was seen crawling to the capital.

Radiation Threat

For now, the government remains engulfed in defusing the threat of radiation spreading from a crippled nuclear power plant in Fukushima, whose cooling system was knocked out on March 11. Tokyo Electric Power Co.’s consequent rolling blackouts have hampered factory operations across the country.

Stocks resumed their slide today. The Nikkei 225 Stock Average fell 2.1 percent as of 11 a.m. local time, after rebounding yesterday from a two-day plunge of more than 16 percent.

Goldman Sachs Group Inc. estimated damage from the disaster to reach 16 trillion yen, while Morgan Stanley analysts said it would be tens of trillions of yen.

Sendai, the 12th most populous city in the nation, may be the fastest to recover as companies rush to tend to their damaged facilities and the government builds the infrastructure necessary to resume operations at those businesses, according to economist Soichi Okuda, chief economist at Sumitomo Shoji Research Institute in Tokyo.

Damaged Factories

Sendai Shiogama port reopened yesterday as companies struggled to bring their operations back online after the magnitude 9 earthquake and tsunami.

Japan Tobacco Inc., the world’s third-largest publicly traded cigarette maker, said the quake damaged its factories in Fukushima and Ibaraki and has halted operations at those plants as a result. Kanto Auto Works, an assembler of passenger cars for Toyota Motor Corp., said it’s working to restore facilities in Iwate that were damaged by the quake.

Sendai was first developed in the early 1600s by Date Masamune, the a daimyo, or feudal lord, and ally of Shogun Tokugawa Ieyasu. Date built the fishing village into a trade hub.

An airport built in Sendai, Tohoku’s unofficial capital, in 1940 and bullet trains reaching Morioka, Iwate, in 1982 helped the region stay connected to the booming economies around Tokyo. Shipments out of Fukushima, Miyagi and Iwate, the three prefectures hardest hit in the disaster, totaled 9.6 trillion yen in 2009, according to Trade Ministry data.

Counterbalance to Tokyo

“Rebuilding Sendai could actually be an opportunity to try to create a growth pole in northern Japan,” said Marcus Noland, deputy director of the Peterson Institute for International Economics in Washington and co-author of the 2001 book “No More Bashing: Building a New Japan-United States Economic Relationship.” “Tokyo’s sucking the life out of the rest of the country, and this may be an opportunity to do something up in Sendai which would start to act as a counterbalance to that.”

Aomori and Akita, two of the six prefectures that make up Tohoku, have suffered Japan’s biggest declines in population in recent years as younger workers moved to bigger cities. About a quarter of Aomori high school graduates left the prefecture in 2009.

As policy makers deploy reconstruction funds, one danger is increasing reliance on public spending rather than private business.

“Public works spending will obviously surge as we rebuild the area, but the challenge will be to do it in a way that ensures sustainable growth in the long-term,” said Tamai Chino, an analyst who focuses on regional economies at Mizuho Research Institute in Tokyo. “They need to have a clear plan for the future.”

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