By: Dr. Mike Campbell
Just two weeks have elapsed since a catastrophic earthquake and tsunami struck Japan, wreaking destruction and devastating the infra-structure of the north east coastal region of the country. The official death toll has now reached 10,000 and ultimately will go much higher. The situation has been complicated by damage to a nuclear power plant which has released some radiation to the environment and still has to be made properly safe. The disruption to the nation’s infrastructure and damage to the nuclear power plant has triggered power shortages and electricity rationing. All of the nation’s remaining nuclear power facilities will need extensive safety checks before they can be brought back on-line.
The International Monetary Fund has expressed confidence that Japan will be able to recover from the disaster without requiring external help. The Japanese government has tentatively put the costs of the reconstruction programme at $309 billion, but it is still too early to make a detailed costing. The IMF expects that the disaster will have no long-term effect on Japan’s economy, but that it will affect economic output in the near term. Japan’s economy suffered a 1.3% contraction in the final quarter of 2010, but still produced growth of 3.9% for the full year.
Despite the fact that Japan has the worst debt problems in the industrialised world, it still has a very high level of domestic savings on deposit. Japan may be able to call on this resource to help finance the reconstruction costs; particularly because the nation is running a near zero interest rate policy. Attracting money from domestic sources would appeal to the Japanese sense of patriotism and a small premium, well below the bond market rates, would probably suffice to secure funds.