By June supply chain disruptions had largely been fixed and key factories were up and running as reflected in Japan’s first trade surplus since the disaster. By September the recovery was more or less complete and the summertime energy restrictions were over and car manufacturers and electrical machinery makers were revving up production and showing signs of optimism despite the strong yen and debt problems in Europe. In the summer of 2011, consumer sales soared in the disaster-hit Tohoku region as people began buying replacement goods for things they lost in a big way.

In July 2011, U.S. industrial output recorded its best gain in seven months in part because the auto sector was coming back and boosting production as supply disruptions linked to the March 2011 earthquake and tsunami eased. In August exports rose for the first time in six months---albeit at a modest 2.8 percent---and this was also seen as a sign that progress was being made in the recovery from the disaster.

The Economist reported: “Lots of things could go wrong with the economy and public finances. The clean-up bill has raised new fears about the government’s ability to pay for it and bring Japan’s big public debt under control at the same time.”

Among the businesses that did well in the wake of the disasters were: 1) car companies that sold cheap mini-cars and used car dealers that sold vehicles to people who lost their cars in the tsunami; 3) bottled water companies; 4) enterprises that make and sell radiation detection devices; 5) producers of LEDs and software that measures electricity usage; 6) construction companies involved in reconstruction; and 7) companies that provided trucks and heavy machinery used to clean up debris.

Tourists and Foreigners after the Fukushima Crisis

A total of 531,000 non-Japanese left Japan is the four weeks after the March 11 earthquake and tsunami, including 244,000 who left in the first week. To describe the exodus the term “fly-jin” and “bye-jin” ---an adaption of gaijin, the Japanese term for foreigner. Thirty-two embassies in Tokyo closed or shifted their operations to western Japan. But during the same four-week period, 302,000 foreigners arrived in Japan.

The number of foreign tourists visiting Japan fell by 73 percent in March 2011 from a year earlier. As of mid April, 560,000 people canceled hotel reservations nationwide in the wake of the quake. At least 80,000 foreigners canceled plans to visit Japan. Some foreign airlines cancelled flights. Normally busy shopping and tourist area were empty.

The earthquake and tsunami in 2011 had a devastating effect on tourism both in Japan and abroad in places that usually welcomed lots of Japanese tourists. Foreign tourist were reluctant to visit Japan because of worries about radiation and Japanese tourists cancelled their trips overseas mainly due, it seemed, to worries connected with the disaster. Business to and from Japan also fell off and several airlines cut back the number of flights to Japan.

The disaster was particularly a blow for Japan because it has commonly been thought of as a safe tourist destination. Chinese tour agencies suffered mass cancellations after Beijing sent buses to evacuate thousands of Chinese nationals from quake-stricken northeast areas. And issued a travel advisory. Japanese officials were frustrated that countries like the United States and South Korea issued travel advisories for all of Japan not just northeast Honshu where the earthquake and tsunami struck.

At one stage more than 50 nations urged their citizens to leave Japan or refrain from coming. By mid April countries such as Russia, France and the United States had lifted or eased their travel warnings. Still it took some time to recover. The number of foreign tourists in April and May were down 62.5 percent and 50.4 percent respectively from the previous year.

As part of the effort to lure visitors before the summer travel season ends, the Japan National Tourism Organization recently posted online the radiation levels for downtown Tokyo, which the tourism group says are lower than in tourist destinations such as New York, Singapore and Hong Kong. Among the group's efforts are online videos of race car drivers, ice skaters and other celebrities, including Lady Gaga, urging travelers to visit the country. [Source: Hugo Martín, Los Angeles Times, July 26, 2011]

In an efforts to attract foreign tourists back to Japan after visitor numbers plunged in the wake of the March 11 Great East Japan Earthquake, 41 international celebrities and cultural figures who love Japan have pooled their efforts to create an English-language guidebook called Travel Guide to Aid Japan . Among those that contributed were American fashion designer Tommy Hilfiger, French singer-actress Jane Birkin, American musician Jake Shimabukuro, Dutch author Karel von Wolferen, Indian conductor Zubin Mehta and Spanish chef Ferran Adria. They recommended places foreign tourists should visit.

But Japan's tourism industry faces several hurdles, including lingering fear among foreign travelers about potential radiation hazards and increasing fuel prices that keep airfares to Japan high.

Longer Term Economic Impact of the Earthquake and Tsunami

20110413-US Navy clean up2.jpg
cleaning up and rebuilding
The economic toll---including the damage to exports and international trade---of the earthquake and tsunami in 2011 defies a full reckoning. The twin natural disasters could cost Japan in excess of $300 billion, including $60 billion in insurance pay outs, with the government picking up much of the tab. The World Ban estimated it would take Japan five years to rebuild and recover from the disaster. Signs of economic loss could also be found in many corners of the globe, raising questions about the effect on the still-weak economic recovery in the United States, Europe and Japan.

Steve Lohr wrote in the New York Times: “As bad as the toll might eventually be in lives and property from Japan’s earthquake and tsunami, the fact that the disaster hit far from Japan’s industrial heartland will at least soften the economic blow, both at home and abroad. The epicenter was in and around the coastal city of Sendai, nearly 200 miles northeast of Tokyo, the nation’s population center, and well north of Japan’s primary manufacturing region running from Nagoya to Osaka and farther south and west.” ?If this had been a couple hundred miles to the south, the economic and human toll would have been almost incomprehensible,” said Marcus Noland, a senior fellow at the Peterson Institute for International Economics. “In that respect, Japan dodged an enormous bullet here.”[Source: Steve Lohr, New York Times, March 11, 2011]

“The disaster could prompt the Japanese government to pump more money into the economy, analysts say, and is very likely to result in increased public spending on buildings and roads,” Lohr wrote. “And it could propel Japan’s already strong currency, the yen, even higher against the dollar and other global currencies, as Japanese money invested abroad returns to help in the rebuilding. In global currency trading on Friday, after the earthquake, the yen did edge higher.” [Ibid]

“Because Japan occupies an unstable slice of the earth’s crust and tremors are a routine part of life, Japan’s government, scientists and industry are almost continually engaged in moderating the impact of earthquakes through innovative building designs, strict construction codes and advance planning...And over the past two decades, the Japanese automakers have shifted a large portion of production of cars sold for the United States to American plants, while Japanese parts suppliers have set up shop in North America as well. “Given their contingency plans for earthquakes, and all the production done abroad these days, I’d be amazed if this had a real impact on Toyota or other leading Japanese car companies,” said Clyde V. Prestowitz Jr., a Japan expert and the president of the Economic Strategy Institute, a nonpartisan policy research group in Washington.

In 1995, after the devastating earthquake centered in Kobe, a port and industrial city, which killed more than 6,000 people and caused more than $100 billion in damage, the yen rose in value against the dollar 20 percent in the following two months. Some analysts predict that the yen will strengthen in the wake of this earthquake, too. Why would a disaster cause a nation’s currency to gain in value? In Japan’s case, the answer lies partly in the country’s high savings rate and sizable investments abroad.” “As households see their physical assets destroyed, need funds for reconstruction and become more risk averse,” Michael Hart, an analyst for Roubini Global Economics, wrote on Friday, “they are likely to repatriate their savings.” In doing so, they would convert their foreign holdings back into yen, increasing the demand for the Japanese currency, thus driving up its value. Still, a strong yen could pose problems for Japanese exporters, by making their products relatively more expensive on the global market.

For Japanese consumers, spending to increase household inventories of food and other daily necessities will probably increase, but outlays for luxury goods and services, notably tourism, will fall sharply, Masaaki Kanno, a Tokyo-based economist for JPMorgan Securities, predicted in a note to clients...The disaster, economists say, may well prod Japanese policy makers to increase government spending to stimulate the economy, despite adding to the nation’s sizable debt burden in the near term. And private investment on construction should increase as well. “There should be some positive impact because of the rush to rebuild,” said Edward J. Lincoln, a Japan expert at New York University’s Stern School of Business. “Perversely, you may have an economic benefit from this over the next year or two.”

Foreign Investors Attracted to Japan After the Disaster

An industry ministry white paper issued in July 2011, according to Kyodo, said that securing free trade agreements with other countries was important for Japan to recover from the aftermath of the March 11 disasters as well as to attract more foreign businesses. "If various costs are reduced by free trade would give a boost to (companies') production activities that have started to recover," the white paper said. It "might be desirable" that Japan join a regional free trade accord currently being negotiated among the United States and some other Asia-Pacific countries, the paper added. [Source: Kyodo, July 9, 2011]

Japan’s stock market fell by a fifth immediately after the disaster. In the months that followed it would have have plummeted further were it not for foreign investors who pumped $60 billion into the marktes as opposed too domestic institional investors who pulled $25 billion out. The Economist reported: “The investment flow has been more steady than large. It has been targeted at certain sectors like machine tools, construction equipment and electronic parts, rather than across the board. And the money is said to be from large institutions which are cautious getting in and patient before getting out. Japan has also benefited from money that has been pulled out of the Middle East and North Africa this year. Traders say that investors from China and other Asian countries may be buying through intermediaries.” [Source: The Economist, June 2, 2011]

The attraction for foreign buyers is that Japanese shares are cheap relative to other markets. “Investors are buying value, not momentum,” says one fund executive. Mark Mobius, an emerging-markets investor at Franklin Templeton, says that now is one of the best times to buy Japanese equities in many years because their price/earnings ratios are comparatively low.

Foreign investors... are pinning their hopes on a bounceback to growth in the second half of this year thanks to reconstruction spending. Many are expecting a boom in corporate profits on the back of buoyant exports...Soon after the earthquake, tsunami and nuclear crisis, many foreigners (called gaijin in Japanese) fled the country. Insulted Japanese nicknamed them flyjin. Even the head of the Tokyo Stock Exchange, Atsushi Saito, heaped scorn on them. But maybe they now deserve some credit for greasing the wheels for the market recovery. Time to change their name again, to buyjin”

Rebuilding the Economy in Disaster-Struck Tohoku

Takashi Shiraishi, president of both the National Graduate Institute for Policy Studies and the Institute of Developing Economies, Japan External Trade Organization, wrote in the Yomiuri Shimbun, “To ensure the recovery of the Tohoku region, the government should establish a special economic zone encompassing Fukushima, Miyagi and Iwate prefectures, together with efforts to strengthen the area's links with manufacturing networks in other Asia countries.

Shrasihi proposes designating the three Tohoku prefectures as a special economic zone where corporation tax should be lowered to internationally competitive levels and regional and global economic partnerships encouraged by having Japan join the TPP (trade agreement) framework. We already have a good example in Okinawa Prefecture. Naha Airport now serves as an international hub for cargo being transferred overnight to and from Narita, Haneda, Kansai, Seoul, Shanghai, Taipei, Hong Kong and Bangkok. Cargo reloaded at Naha at night is carried to any of the eight airports the following morning. I recommend that this cargo flight network include Sendai Airport to help enhance the Tohoku region's links with the rest of Asia. Another idea is to beef up a trunk seaborne cargo route from the Tohoku region to Hong Kong, Ho Chi Minh City and Singapore via Osaka and Fukuoka. Nontariff barriers also should be reduced. If the government adopts a set of measures pertaining to those air and sea networks, economic benefits will be a substantial plus not only for the three Tohoku prefectures but all of Japan.

In October 2011, the Japanese government said will launch a project to make the Tohoku region a hub for recovering rare metals from small electric appliances, including cell phones collected from across the country, to support the reconstruction of areas hit by earthquake and tsunami. Tohoku once prospered as a mining region, and there are a number of business enterprises that have the technology to recover rare metals.

In May 2012 Jiji Press reported: “Japan Finance Corp. said 79 percent of its 1,164 small and midsize client companies that were directly affected by the March 2011 earthquake and tsunami have seen sales recover to more than 80 percent of predisaster levels. Sales remained at 50 percent or under for 7 percent of all businesses surveyed. Many operate in Pacific coastal areas in the Tohoku region that were devastated by the tsunami. [Source: Jiji Press, May 2, 2012]

Image Sources: 1) U.S. Navy except Kelly Kaneshiro (shortage shots)

Text Sources: New York Times, Yomiuri Shimbun, Daily Yomiuri, Washington Post, Los Angeles Times, Kyodo News, National Geographic, The Guardian. Times of London, The New Yorker, Time, Newsweek, Reuters, AP, AFP, and various books and other publications.

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© 2008 Jeffrey Hays

Last updated October 2011

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