On the 11th of March 2011, north eastern coastal regions of Japan were struck by the worst earthquake in their history. The earthquake was followed by a tsunami which raced inland, destroying towns and infrastructure and leaving more than 20000 dead in its wake. Damage sustained to the Fukushima nuclear power plant lead to the release of some radioactive material to the environment. As a result, all of Japan’s nuclear generation was taken off line until the integrity of all of the facilities could be inspected and assured. The disruption of Japan’s power supply and the damage to large sections of the nation’s infrastructure reduced the nation’s manufacturing capacity for months following the catastrophe.
The Japanese government has now approved an additional $157 billion of funding for quake reconstruction; the third such tranche. It takes the quake funding to almost $240 billion. The latest funding requires the approval of parliament, but this is likely to be a formality. Some analysts said that the reconstruction effort would push Japan back into growth, but that has yet to happen.
When the disaster struck, the Dollar stood at 83.0716 Yen; today it stands at 76.6750, a fall of 8.3%. Japan was already slipping back into recession before the disaster struck and the economy has now been in contraction for four quarters. The situation is not being helped by the Yen’s status as a safe haven currency. Some of the latest tranche of funding has been earmarked for measures to help business deal with the effects of the strong Yen. It is anticipated that these funds will be used to sell Yen when market forces push it higher. The success of this move has been very limited in the past.
In a recent survey, 46% of major Japanese manufacturers indicated that they would consider moving production outside Japan were the current value of the Yen to be maintained for six months. Such a move could have far reaching consequences to Japan’s domestic economy as anybody who lived through the emasculation of British industry will tell you.
