The earthquake and resulting tsunami that occurred on March 11th, known as the 2011 Tohoku earthquake and tsunami, had left Japan's economy shaken as they are assessing the excessive damage and estimated recovery costs. With the Nikkei 225 plunging over 1000 points, closing at 8605.15 on Tuesday, it has indicated that investors are uncertain of Japan's future. As the Bank of Japan is on standby, they are considering an injection of $246 Billion US into the economy to increase the overall GDP and help soften the blow from the earthquakes and resulting tsunami. The Industrial segment has been adversely affected by the damage the resulting earthquakes have caused, and the power outages due to several nuclear reactors not being able to sufficiently supply energy, causing rolling blackouts in areas such as Tokyo. Many analysts believe that the Bank of Japan could take a more aggressive approach in order to come out stronger, as their current plans seem to be more passive and conservative while they try to work out Japan's budget with the government's house opposition.
An Injection of $246 Billion US from the Bank of Japan will increase the overall GDP during the recovery that Japan will have to go through during reconstruction of their country after the earthquake and tsunami. Exports have been hit hard due to manufacturing plants being damaged. This in turn would lower the GDP of the economy as not as much profit has been generated. However the demand of these products that are usually exported from Japan would grow, due to the unavailability of the products. With the future expectations of Japan's estimated costs to rebuild and restructure their damaged infrastructures, aggregate demand would be expected as a result. Japan needs to employ more workers and purchase more materials in order to restructure, and with all this investing into the economy, Japan should come out better than it has prior to the earthquake and tsunami. Many of the employed will have the extra disposable income generated by this event, pouring money into the economy and will eventually help jump start the economy back on track.
Despite the short term economy hardships that Japan will have to endure, i believe that due to this aggregate demand that was generated by the continuous needs of reinvestment into Japan's economy and infrastructure, Japan would come out stronger than it has as a result. For many reasons, people would be against my opinion however the opposite does connect well. The earthquake and tsunami will only have a short-term effect on Japan's economy. With the resulting disruption, many manufacturers have had to resort to alternatives for the time being as there's a supply shortage caused by the earthquake and tsunami. This is an opportunity for many corporations in Japan to come out stronger by effectively planning out how to take advantage of this aggregate demand generated by a sudden burst of spending into rebuilding the infrastructures and economy. And as their infrastructure needs to be fed more money, this would in turn feed the economy above pre-earthquake levels.
Source - http://news.xinhuanet.com/english2010/world/2011-03/16/c_13780402.htm
I found your blog very interesting, in that you are analyzing the effect of the earthquake on the demand of Japanese products, ultimately affecting the Japanese economy. I like your point on how the reinvestment into Japan's economy and infrastructure would lead to Japan would come out stronger than it has as a result.
ReplyDeleteAs a result of the earthquake, Japan’s economy will definitely be hard hit. The radiation emanating from the nuclear reactions will most likely infect Japanese foods, and the demand for Japanese foods will decrease as well. The tourism industry will be greatly affected as well, as people will be afraid to go to Japan.
However, I do agree that Japan’s economy will recover. The main reason is that a lot of products are made in Japan, and even if Japan is struggling to recover, I think countries like the states and Europe will most likely lend money to Japan, because if the Japanese economy fails, the electronic companies like Sony, Panasonic, and cars including Toyota, Nissan, Honda, will go down the drain as well. Overall, I agree with Timothy’s point that Japan’s economy will sure recover.
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ReplyDeleteOverall I found your blog concise with many strong points in your connections summary. I agree how Japan's GDP would raise because of the US billion dollar injection and the demand for unavailable materials or products. The aftermath of the natural disaster caused Japan to invest more into their economy to rebuild, as you have stated above certainly is an interesting point because not only will it help Japan but it will also help us here in British Columbia. It's a scrim situation because their disaster is actually helping us grow since their demand for lumber is a definite necessity as houses are high priority. In result I agree with your post because it has many strong and clear aggregate demand factors.
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