Wed, April 20, 2011
World > Asia-Pacific

Japan's export-led recovery blighted by quake impact

2011-04-20 14:58:51 GMT2011-04-20 22:58:51(Beijing Time)  Xinhua English

TOKYO, April 20 (Xinhua) -- The Japanese government reported on Wednesday that the value of exports had fallen for the first time in sixteen months as the March 11 earthquake and tsunami left industrial regions in the east and northeast of Japan battered, causing a monumental slump in production and disrupting domestic and global supply chains.

While factories and facilities at major exporters including Honda and Toyota suffered physical damage as a result of the twin disasters, the ongoing nuclear crisis in Fukushima prefecture has also contributed to the export slump and overall fiscal damages to the nation, totaling upwards of 302 billion U.S. dollars, according to the latest official figures.

And although roads, ports and factories are being repaired as part of a massive state restoration initiative, Japan's export-led economic recovery is becoming an increasingly protracted proposition, according to some leading economists.


"We've seen exports fall a massive 2.2 percent in March compared to a year earlier, that's two times more than most educated guesses," Timothy Hillman, quantitative analyst at Credit Suisse AG in Tokyo told Xinhua.

"This is of major concern to a nation already struggling to reduce public debt more than twice the size of its gross domestic product and things are likely to get worse before they get better, as Japan is solely reliant on its exports to support its economy," he said.

"Just as the country was approaching what appeared to be a sustainable recovery track thanks to growing demand for Japanese products from other Asian economies, the disaster struck and set the recovery back immeasurably," Hillman said, adding that it was cruelly ironic that Japan's pre-quake economy was gaining real steam.

Hillman went on to say that one of the biggest problem facing exporters now is power supply, with massive shortages expected during the summer period likely leading to enforced power outages at factories desperate to churn out more goods.

A similar point was raised by Hiroshi Nakaso, Assistant Governor of the Bank of Japan (BOJ) and a revered economist here.

Nakasao said that due to the earthquake, Japan's largest power plant lost around 40 percent of its capacity and as such large industrial users will be forced to slash their electrical usage by a whopping 25 percent during peak hours this summer.

He also mentioned a lesser-known drawback which theoretically could have helped balance the power supply and demand ratio.

Nakasao pointed out that power plants in western Japan generate electricity at different frequencies from those in eastern Japan, which means that western plants are unable to transfer some of their excess capacity to the northeastern areas most in need.

But while Nakasao said that based on the economic precedent set following the Great Hanshin Earthquake in 1995 that GDP was unlikely to turn negative, Shoei Utsuda, Japan Foreign Trade Council chairman said Wednesday that the unprecedented drop in exports, and hence trade surplus, would likely worsen in April and possibly beyond.

Utsuda, who is also chairman of trading firm Mitsui & Co., said that the level of damage to exports following the March 11 catastrophe remained "unpredictable."


Leading economists believe that Japan's export-driven economy will likely contract in the second quarter of this fiscal year, with embryonic signs of recovery like to be seen in the third quarter, a view also shared by BOJ chief Masaaki Shirakawa.

However, in the short-term, debt-plagued Japan has seen its economic outlook slashed by the International Monetary Fund (IMF) who now expect the economy to grow by 1.4 percent this year, compared with a previous forecast of 1.6 percent.

"We're likely to see a rebound in the third quarter on production increases, supply chains improvements and a peak in reconstruction demand, but April's export figures, on year, are likely to be horrific with double-digit figures being banded around in some economists' circles," Hillman said.

"The demand is still there, but manufacturers overcoming supply chain and power constraints will be more pronounced in next month' s figures as we've already seen automotive exports plunge 27.8 percent in March, with shipments to China for example, Japan's biggest trading partner, plummeting 26.2 percent and dropping by 23.4 percent in other Asian regions," he said.

According to Hillman's judgement, significant losses on exports will continue until June or July with electric and general machinery sectors along with automakers also coming under severe downward pressure, adding to the nation's already depressed economy.

"But in actuality, Japan, along with its slumping exports, faces a myriad of post-quake economic constraints," said Hillman.

"It's something of a given that production will increase and a recovery in shipments will ensue as Japan is resilient, technologically advanced and will battle back on these fronts."

"But consumer demand and corporate sentiment will be a long while in rehabilitation, added to that the nation's political frailty and one might be forgiven for taking pause at the IMF's confidence in raising Japan's growth assessment for next year to 2. 1 percent," Hillman said.


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