Impact of Japanese Earthquake

As a result of the catastrophic earthquake of magnitude 9.0 that occurred in Japan in March 2011 with the subsequent tsunami destroyed infrastructure in the northeastern parts of Japan, including those disabled by the cooling system of reactors at the plant "Fukushima-1", which led to a significant radiation leak "nuclear crisis" . The accident was given the maximum, seventh level of risk comparable with Chernobyl catastrophe. By October 2011, Japan has been stopped more than 80per cent of nuclear reactors, which caused the country's acute energy crisis. According to the OECD, in the areas affected by the tsunami and nuclear contamination, accounted for 6-7per cent of industrial production, the three hardest hit prefectures of Iwate, Miyagi and Fukushima gave 4.1per cent of Japan's GDP. Former Prime Minister Naoto Kan called the consequences of the disaster the most serious challenge in the history of Japan since the Second World War.

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According to the OECD report, Asia Pacific Region accounts for 56per cent of Japanese exports. According to World Bank estimates, the slowdown in GDP growth in Japan in the 0.25-0.5per cent by mid-2011, three times reduced exports from Southeast Asian countries by 0.75, 1.5per cent. This issue is particularly sensitive for China and the Philippines. So, up to 2/3 of the Philippine exports accounted for electronics. Rising prices for electronic components in some categories are already up 20per cent. In the short to medium term by the energy crisis in Japan could win such energy-producing countries such as Indonesia, Malaysia and Vietnam. This paper examines the impact that this earthquake has had on Australian economy, business development and society.

Impact on economy

First, Australian economy was affected as the whole global economy faced the huge challenges with the reduction of eports from Japan and destabilization of financial systems. However, as a share of GDP in Japan in the global economy in 2010 it dropped to 8.7per cent from 18per cent in the mid-1990s, and the impact of the disaster on the general state of the world economy has been limited. It is manifested only in the field of international trade and was, to a certain extent, offset by shipments of goods from Asia, Europe and the United States. According to the World Bank, the events in Japan have lowered the growth in world GDP in 2011 not more than 0.1-0.2per cent, which indicates that their local character.

According to the IMF, in 2010, Japanese investors have invested in other countries 166 billion. Dollars. To get the funds to rebuild shattered infrastructure and cities, private Japanese companies began to withdraw their capital from the economies of other countries, thereby weakening dollar and increasing borrowing costs for the United States, whose national debt is also cause for concern. In addition, it should be borne in mind that Japan is the largest source of foreign direct investment in Thailand, the Philippines and South Korea. On average, about 25per cent of long-term debt of Southeast Asian countries denominated in Japanese yen in China 8per cent, in Thailand 60per cent. According to World Bank estimates, the growth of the yen by 1per cent means an increase in the cost of debt service of developing countries of Southeast Asia for 250 mln. dollars. 0.25per cent per annum.

Countries that export raw material to Japan were the most affected. Of these, Australia is possibly the most exposed, with 16.2per cent of its exports going to Japan. Furthermore, most of Australia's exports comprise of coal and iron ore for steel production, and these are directly affected by the closure and reduction in Japan's manufacturing capacity.

Japan is Australia's second largest trading partner, but its share of Australian exports has slipped from 25per cent at the time of the Kobe earthquake to 15per cent today. Short-term economic disruption in Japan could cause a decline in orders for coal, iron ore and other commodities in the next few months. However, this is likely to be no more than a blip as the broader impact is likely to be positive as rebuilding will add to strong global demand for raw materials. Problems with nuclear power stations as a result of the quake, and any resultant rethink of the relative attractiveness of nuclear power globally, will likely be negative for uranium demand but positive for gas and coal demand. There may also be increased demand for food stuffs as the area affected is important in Japanese agricultural production. It is noteworthy that even though the value of Australian exports to Japan fell in the March quarter of 1995 when the Kobe quake hit, they rose solidly in total - up 13.8per cent in the March quarter and up 22.2per cent in 1995 as a whole. Finally, imports of cars, electronic goods and other manufactured goods from Japan may see a short-term disruption but this is unlikely to last long, with other global producers also likely to step into the breach given still significant global manufacturing spare capacity. At this stage we see no reason to alter our Australian economic forecasts which see year average growth this year of 2.8per cent and 3.8per cent in 2012 and the cash rate rising to 5.25per cent by year-end.

Impact on business

The most vulnerable to the effets of the earthquake were companies engaged in the energy sector. According to World Bank experts, in the short term impact of the disaster on the state of the energy market was extremely small. Immediately after the news of the disaster the world price of oil has not even dropped. In the worst scenario, the daily volume of oil supplies to Japan could increase by 280 ton of barrels, or 6per cent, amounting to only 0.3per cent of global demand, 88 million barrels per day in 2010. However, in the long term nuclear compensation Japan building other forms of energy, for example, in case of further rise in oil prices may require an additional 8 million tons of liquefied natural gas or LNG 20 million tons of coking coal a year, global demand of 170 million tons and 690 million tons respectively, increase the pressure on the relevant markets (Nanto, 2011).

Direct loss reinsurance industry companies will amount to about 39 billion. USD., as calculated by "AIR Worldwide" 35 billion. dollars. This makes the earthquake in Japan, the most "expensive" in modern history, before the first earthquake took place in California in 1994, costing insurance companies 15 bln. USD. However, at the request of a large insurance company "Munich Re", private insurance companies will not incur any significant losses due to the accident at the nuclear power plant "Fukushima". As noted in the press release of another insurance company, "Swiss Re", insurance loss of the nuclear industry in Japan, does not extend to the consequences of the earthquake and tsunami, including the fires that have arisen as a result of the earthquake or in respect of pecuniary damage, nor in respect of obligations to third parties. In connection with the disaster in Japan, the company expects the volume of claims in the amount of 1.2 bln dollars. (Nanto, 2011). But it was considered "unlikely" a significant direct damage to the insurance industry. The events in Japan have caused disturbances in world supply chain of parts and materials. The most significant damage was caused global automotive and electronics industries. Due to lack of parts from Japan has been suspended production at enterprises the world's largest corporations in the US, the EU and China: "General Motors", "Volvo Cars", "Sony Ericsson", "Volkswagen", "Opel", "Porsche", " Boeing "," Nokia "," Apple ". According to the World Bank, Japan received 36per cent of the world's high-tech products, semiconductors, high-tech equipment and solar panels. Thus, the share of "Renesas Electronics" accounted for 40per cent of the world microchip for cars, but their production was resumed only on June 15 and the volume of the issue amounted to only 10per cent of the existing capacity. Temporarily plants were shut down all Japanese automakers, and the "Toyota lost the title of largest automaker in the world in March 2011, the volume of sales decreased by 30per cent. Japanese mills "Honda" to the end of June, working at half capacity. Due to the special regime energy saving in Japan full recovery of many industries was only towards the end of 2011.

Companies Hino, Toyota, Honda and Mitsubishi Motors halted production at all its plants in Japan. All these companies conduct operations and have representative offices in Australia, And on March 18 Toyota Motor Corporation staff requested to stop working overtime and on weekends at 51 manufacturing subsidiaries located in 26 countries and regions, due to the difficulties in providing these plants components that have arisen as a result of the quake. Stopping output, the automaker apparently aims to prevent a complete cessation of activity associated with the collapse of the supply chain components (Nanto, 2011).

Sony closed the plant for the production of industrial adhesive tape in the city of Kanuma Tochigi Prefecture, as well as plants for the production of CD- and DVD-ROM drive, semiconductor lasers, optical devices, magnetic tapes, external hardware assembly (Hindmarsh, 2013).

Impact on Investments

As reported, the entire greater Tokyo area is facing significant power shortage caused by the disaster in nuclear power plant in Fukushima. Although TEPCO is now rebooting dormant thermal power plants to make up the lost the power supply, prospects for meeting the demand over the coming summer is still grim. On March 25th, TEPCO announced its forecast for electric consumption for this summer and said the capacity of power supply will fall short of demand by approximately 8.5 million kilowatt (4,650 mm kilowatt of supply vs 5,500 mm kilowatt of demand), which indicates the greater Tokyo area will continue to face power shortage for a prolonged period. Since electric consumption directly links to industrial output, a prolonged electric power shortage could weigh on the economic growth going forward. Mizuho Securities says we will probably see a sharp decline in industrial production output by around 10per cent mom for March.

Damages to production facilities in Tohoku region and disruptions in supply-chain are significantly restricting industrial production of some of the globally important manufacturing industries notably IT and auto sectors. According to Credit Suisse, Japan makes 60per cent of worlds silicon wafers, the building blocks of computer chips. The shutdown of two factories by the earthquake took out a quarter of the world's supply. Japan also makes 90per cent of a substance called BT resin used to make printed circuit boards. Major auto manufacturing companies such as Toyota, Honda, and Nissan all have more than 50per cent of their production capacity offshore; however, disruptions in supply chain due to shortage of parts produced in Tohoku region caused them to halt operations at a number of assembly factories (Nanto, 2011).

Impact on financial sector

The initial reaction in the Australian share market has been negative, but any negative economic impact on Australia is likely to be minor and short-lived and Australia is likely to be a key beneficiary of increased raw material demand as Japan rebuilds. With the Australian share market now trading on a forward price to earnings multiple below 12 times, Australian shares are well placed to rebound once the correction in global shares has run its course. In terms of sector-specific impacts, the earthquake is likely to be negative for insurers and uranium producers, but positive for gas and thermal coal producers. It should ultimately be positive for commodity producers more broadly as rebuilding demand kicks in. So far the Japanese quake has taken pressure off oil price...