Economists: Bankers Play Down Economic Impact of Japan Disaster

Japanese Prime Minister Naoto Kan speaks at a press conference at the prime minister's official residence in Tokyo on March 15, 2011. Kan told people living up to 10km outside a 20km exclusion zone around a quake-hit nuclear plant to stay indoors. (STR/AFP/Getty Images)

WASHINGTON—The International Bankers Association, representing 59 foreign commercial banks operating in Japan, is reporting ‘business as usual’ in Japan despite the magnitude 9.0 earthquake that wracked the northern coastal region of Tohoku March 11.

“Despite rumors to the contrary,” there have been no business closures or evacuation of staff, reported the organization in a statement.

Japan operations of the Bank of America, Merrill Lynch, Bank of New York, Citigroup, Goldman Sachs, and J.P Morgan are all okay.

While an estimated $200 billion in damages were sustained in the earthquake and subsequent tsunami, the world’s money managers are acting decisively to reassure and calm global markets.

The greatest uncertainty remains about the possibility of nuclear radiation fallout from the Fukushima nuclear power plant damaged in the disaster. Three of its reactors have been damaged.

Prime Minister Naoto Kan urged the public in a televised appearance not to be pessimistic about the country’s outlook and suggested that the reconstruction efforts could stimulate demand.

He also likened the rebuilding effort to the New Deal policies of the United States in the 1930s.

Production of automobiles, auto parts, consumer electronics, and parts are the primary industries affected. U.S. retail companies such as Starbucks, has reported the shutdown of 100 of its 900 stores in the country. McDonald’s reported 300 restaurants closed.

Many economists are playing down the effects of the disaster, and say that damaged Japanese industries will be back at full capacity within months. By now, economists are familiar with the scenario of shocks to confidence, and then a spurt of construction and rebuilding.

In Japan companies must overcome challenges related to the availability of power, and infrastructure damages, which have affected the movement of supplies throughout the region.

U.S. Treasury Secretary Timothy Geithner, answering questions before a House of Representatives appropriations subcommittee, said it was too early to tell what effect Japan’s catastrophe would have on the U.S. recovery.

“It a hard judgment to make at this stage. Our focus now is, as it should be, on trying to do as much as we can to help them mitigate the humanitarian costs of the catastrophe there, and we'll offer them every assistance we can and help make sure that the restructuring effort itself is handled as carefully as possible.”

In general, U.S. government representatives are playing down the potential for the Japan disaster to have much effect on the nation’s economy.

Read More . . . G-7 Finance Ministers

On Thursday, Japanese Minister for Economic and Fiscal Policy Kaoru Yosano told Reuters the damage done to the economy would be limited. He also said his country had a budget ready to fund the relief and reconstruction effort, and that Tokyo should have no trouble financing that spending.

Minister Yosano also predicted the cost of damages would likely exceed 20 trillion yen (US$252.51 billion), which is more than the cost of reconstruction after the 1995 Kobe earthquake.

“It will be just several trillion yen of deficit-covering bonds. How to fund the costs isn’t a big problem. Both the private sector and the government have plenty of funds, and the Bank of Japan is providing ample liquidity. There’s nothing to worry about in terms of funding,” Yosano told Reuters.

Yosano’s remarks come just ahead of a scheduled conference call Friday morning of G-7 finance ministers to discuss whether or not intervention by other economies would be helpful. The same group expressed confidence in Japan’s ability to handle the crisis earlier in the week.

The Japanese economy is unique in that it holds the highest public debt (225 percent of GDP, according to the CIA World Fact Book) of all developed economies, and yet that debt is supported by the high bank savings rate of its own people, which gives banks more flexibility to deal with the crisis.

It is expected that Japanese investors will repatriate dollars back into the economy for the rebuilding effort.

Japan and the United States have a long history of strong political, military, and economic ties. During a telephone conference Thursday with Japanese Prime Minister Naoto Kan, President Obama promised U.S. assistance for the medium- and long-range reconstruction efforts.