Fisher Investments Editorial Staff
Developed Markets, GDP, Investor Sentiment

Japan, One Year Later

By, 03/13/2012

One year ago Sunday, the Great Tohoku earthquake struck Japan, sending a 65-foot tsunami into the island nation’s northeast coast. Over 19,000 people perished as seaside towns were leveled, and hundreds of thousands remain homeless. It was a humanitarian tragedy whose impact won’t soon fade.

Many feared the economic impact would be similarly lasting in the quake’s immediate aftermath—not just in Japan, but globally. The quake didn’t just disrupt production in the affected areas. Before the temblor, 54 nuclear power plants supplied around 30% of Japan’s power. But 52 were taken offline after the disaster at the Fukushima Daiichi plant, bringing rolling blackouts and rising energy costs nationwide as Japan tried to fill the shortfall with imported fossil fuels. This hampered production throughout Japan, which is a dominant producer of cars and automobile components, semiconductor components and many more high-tech goods. Serious production setbacks, some feared, would wreak havoc on the global supply chain.

There was indeed a visible impact in the short term, but it’s already begun subsiding. Japan’s GDP contracted in Q1 and Q2 2011, driven by double-digit drops in exports (primarily transport components and electronics), and US auto sales dipped due to supply shortages. Yet they snapped back to pre-quake levels in September 2011 and have accelerated since. Not coincidentally, Japan’s exports turned positive in August and September, helping GDP grow in Q3. Growth backtracked a bit in Q4 as the strong yen dampened exports, but domestic demand resurged in a big way—private demand (mostly consumer spending) grew 2.7%, and business investment jumped over 20%. This speaks directly to the Japanese economy’s resilience.

Looking ahead, the recovery seems poised to continue. Business capital expenditures grew again in January, driven by core machinery orders (which exclude shipping and electric utilities). The BOJ has taken steps to rein in the yen in recent months, which should help make Japanese exports more competitive. Rebuilding efforts will likely accelerate, giving domestic output a near-term boost. But that’s likely not the primary driver of Japan’s resilience over time. In our view, that’s more a product of Japan’s amazing human capital. The Japanese workforce is full of well-educated people who can and seemingly will continue innovating—and technological gains are the lifeblood of vibrant economies. An earthquake and tsunami won’t stop the Japanese from attempting to create ever-smaller and faster semiconductors, more efficient cars and the like.

One other important aspect of the Tohoku story is its effect on global nuclear power. Though it increasingly seems the public health impact will be somewhat muted, the fear of fallout has called the industry’s future into question in some places. Those 52 Japanese plants remain closed for safety inspections and upgrades, and Germany—far removed from Fukushima—has cut a path against nuclear energy. Meanwhile, the US, China and other nations have either greenlit or begun building nuclear plants. In short, the nuclear question is unlikely to be firmly answered in the near term. But history suggests disasters like this can help make the industry safer in the future.

The story of Tohoku cannot be fully told without considering the economic theorizing of the day. But when you accept the principle that modern, developed economies are highly resilient, your thoughts are free to shift where they’re more apt. One year later, though Japan’s economy seems to tell us the quake and tsunami’s impacts were temporary, for the families of those lost, the impact is anything but.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.