Mapping The Scenarios For The Japanese Economy

Tyler Durden's picture

Now that the world has gotten over the kneejerk "contain the panic" reaction of claiming anything that has happened in Japan is good for its economy, and the worse in fact the better, it seems some are willing to engage in a more rational debate of the future of Japan's economy in the aftermath of a nuclear crisis. Reuters has compiled a more objective list of opinions and key industry verticals than something that could come out of a San Diego weatherman. "Nuclear experts can't agree what the worst-case scenario for Japan's nuclear crisis might be, so predicting the impact of the disaster on the world's third-largest economy with any accuracy is an impossible task. But even if a catastrophic nuclear meltdown is averted, a drawn-out battle to stabilise the earthquake-crippled Fukushima plant poses a serious risk to an economy already burdened with huge public debt, an ageing population and a big bill to rebuild from a quake and tsunami disaster that caused damages possibly topping $300 billion. "What is the worst-case scenario? Most people think it's a mushroom cloud. But the worst-case scenario is that this drags on, not one month or two months or six months, but for two years, or indefinitely," said Jesper Koll, director of equity research at JPMorgan Securities in Tokyo. "Japan will be bypassed. That is the real nightmare scenario."" Ironically, for once we agree with JPMorgan. 

More details:


A prolonged lack of clarity would add to pressure on Japanese firms to shift production overseas while further decreasing the attraction of Japan as an investment destination for foreign companies, already put off by the spectre of earthquakes, a strong yen and a sluggish economy.

The hollowing-out of Japan's economy has already seen overseas production rise to 20 percent of total output from 6 percent over the past two decades.

"It's not just companies outside Japan but companies in Japan that would become reluctant to make decisions to invest," said Takuji Okubo, chief economist at Societe Generale Securities in Tokyo.

Ironically, perhaps, that might help Japanese corporate profits if not the domestic economy.

"Japanese companies relocating faster overseas will increase profit margins, since overseas profit margins are three to five times higher than at domestic facilities," Koll said.

Simmering anxiety about the nuclear crisis and its impact on health through a spreading contamination of food and the atmosphere with radiation could also dampen consumer spending, economists said -- though, again, to what extent is difficult to gauge.

"Uncertainty is disliked by consumers and businesses," said Robert Feldman, chief economist at Morgan Stanley MUFG Securities in Tokyo. "The longer the uncertainty continues, the harder it is for demand to revive."

New readings announced on Wednesday showed a spike in radioactive iodine in the sea off the plant to 3,355 times the legal limit, although experts say the vastness of the ocean and a powerful current should dilute the levels and limit the danger to fish and other marine life.

Radiation above legal limits has also been found in vegetables, milk and tap water in areas outside the 20 km (12 mile) evacuation zone around the nuclear complex, and an extended crisis would increase concerns about food. Worries about atmospheric contamination, even if unfounded, could incline people to stay home rather than eat out or entertain.


However, it is difficult to quantify just how spending habits would change.

"We tend to think eating out and drinking or other activities outside account for a lot, but it isn't that people would stop living in their houses, and they still have to eat," Okubo said, noting that restaurants, accommodation and travel accounted for about 8 percent of Japanese consumption compared to 25 percent for housing and utilities.

"People would find other ways to consume and spend their money. Maybe people would spend more in health or they might start buying cars because they don't like walking on the street."

Travel, tourism and trade would also be affected.

Several countries have already banned milk and produce from areas near the damaged nuclear plant because of contamination fears, although food makes up only 1 percent of Japan's exports. Broadcaster NHK said that even the city of Kyoto, a long distance from the nuclear plant, had seen overseas orders for Japanese tea shrink.

"When we are faced with uncertainty, we tend to overestimate the cost and damage, so I'd say even if the whole affair lasts something like a year, if I were to quantify the damage, I'd say 1 percent of GDP could be lost because of the prolonged nuclear problem," Okubo said. "I've forecast 1 percent growth this year, so I might have to forecast marginally negative growth."

Even forecasting the impact of the quake and tsunami disaster alone is tough, given questions about the timing, content and financing of a reconstruction package that will be the biggest since Japan's devastating defeat in World War Two.

Forecasts in a poll of 10 economists for calendar 2011 ranged from 1.5 percent growth to a drop of 1.2 percent.

Perhaps more worrisome than the direct economic impact is the possible damage to the "Japan Brand", an asset that is as invaluable as it is hard to quantify. "The ultimate question is what happens to the 'Cool Japan' brand," Koll said.

"It's an intangible. Japan does have brand value, but now Japan may become viewed in world eyes as 'kawaiso' (pitiful) and a victim ... There was an aura about Japan that definitely did work."

Since the topic of an actual adverse reaction to recent events is now no longer taboo, we look forward to presenting credible analysis on the matter of just how substantial the global GDP crunch will be in the months to come.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
GOSPLAN HERO's picture

Japan will dump U.S. Treasuries, comrades.

Dr. Richard Head's picture

one can hope.  would love to see the music stop finally, ifc it would at all.

Ethics Gradient's picture

Yeah, because after sereval hundred earthquakes, a tsunami, several partial/complete nuclear meltdowns, widespread hunger and the displacement of a few hundred thousand people, they've become so addicted to catastrophe that they'll intentionally bring a new one about....

oxalis_tuberosum's picture

In case anyone missed it, here's an interesting quote from Kyodo interviewing an onsite worker who suggests that it is more than just concrete that was scattered by the hydrogen explosions :

Within the plant's premises, rubble with highly radioactive materials was scattered after hydrogen explosions at reactor building in the days after the quake. ''If they are removed soon by heavy machinery, work will be a lot easier but the operator (of the machines) will inevitably be exposed to radiation,'' the man said.

So looking on the bright side, maybe the fuel pools aren't as full as we feared. At least not any more.

A Man without Qualities's picture

One of the other aspects of the Chernobyl accident was because it took the Swedes to inform the world an accident had taken place, it shattered even further the myth that the leaders were competent and in control.  Previously, people had feared and respected the party, but this broke the illusion of authority. I can imagine the younger generation seeing the model that served Japan since the war (political class, business class) is broken and has failed the nation.  

Vampyroteuthis infernalis's picture

My guess it the younger generation already view their elders in this manner with rampant unemployment among young adults. This event is confirming their beliefs.

flattrader's picture

Conditions for workers at the plant are abysmal.

This will not get cleaned up anytime soon with commercial workers under these conditions.

Kaku is right.  They will have to bring in the military.

GlassHammer's picture

 I thought the Japanese recovery was going to pay for itself through the Krugman Window Fallacy. 

A Man without Qualities's picture

There's no buildings left to put the windows into...

Yikes's picture

I guess nobody  told JP Morgans Japan trading desk.  Nikkei up 2.5% today.  Obviously this nuclear meltdown is a value proposition.

cossack55's picture

Did the JPM scum get the same message as the GS scum "You ain't leaving".  Facing a death sentance often brings out the truth.

Oh regional Indian's picture

japan is looking at a long slide down. No way out of it. The nuclear stigma is a huge one.

No trust left in the system either and as for Japanese "perfectionism"... enough said.

They were an amazing insular island, they'll probably find their re-pair and re-surgence in that model.


Josephine29's picture

I think that you are right to criticise the attitude of the mainstream media and indeed many analysts Tyler. The view that Japan will recover in the blink of an eye looks ever more wide of the mark as events develop. Earlier this week Notayesmanseconomics pointed this out.

As to the underlying Japanese economy I have been bemused by the large number of economists who have rushed forward in the media to declare the scale of the crisis. I notice that their estimates have risen from 3% of Japan’s Gross Domestic Product to 6% without much of a mea culpa. They still do not know that and many of them should be ashamed of themselves. For example much of Japan’s car production is still disrupted and even such a benchmark as Sony has reported that it is stil suspending or reducing production at some of its Japanese plants due to parts shortages.


Only time will tell us the full extent of this crisis and the worst may yet be ahead of us.....

StychoKiller's picture

...the aftermath of a nuclear crisis.

Aftermath implies that the crisis is over -- this crisis is far from over!

TaxSlave's picture

One thing that seems sure ... Operation Cover-Up is going to take a long, long time.

New_Meat's picture

Supply chains around the world are looking for other sources of materials, components, chips.

Ford-no black paint

GM Shreveport LA-no pick'em up trucks

chips (I'm wondering how many fabs will be sacrificed if they have been black and can't move air)

- Ned

firstdivision's picture

How could consumer spending be down when everyone is buying potassium iodine and bottled water?

Judge Judy Scheinlok's picture

"Mapping The Scenarios For The US Social Security and Healthcare Industry"


1) Because of wind patterns the US is currently getting radiation poisoning from radioactive particles that have been emitted into the atmosphere from Fukushima.

2) The air, water, and ground are currently being polluted. Your food sources and potable water currently have radiation in them from Fuckushima.

From .gov's perspective this is good for business in the USA.

Millions will be affected and lifespans will be reduced. Social security and pensions will not have to perform as promised.

The healthcare industry will benefit most as this pollution will surely make your insides start to rot and you will run to Dr. Stein, desperately trying to "buy more time".

The sheeples dilemma. There is dignity in silence.

MiningJunkie's picture

Disaster, spin, gerrymander, print money, juice equity futures, stabilize markets, spin more, print more....

As long as the public believes the bullshit, just buy the fucking dip.

Never underestimate the replacement power of equities within an inflationary spiral.

Period end.

buzzard's picture

Any examination of an economy which places consumer spending as having a major role in any successful economic "recovery" is bogus at the outset. It frustrates me to see discussions like this because the old paradigm thinking hangs on like a limpet impeeding any real progress at adapting to physical reality. It means that we are still blind to the truth. What we need is not old school 'economics' and 'politics' but to begin finding ways to mitigation and sustainability plans which let us down more gently.

Blue Vervain's picture

Nuclear power stations require continuous processes to prevent a lapse into a destructive state, while nuclear arms are safe until actively and deliberately launched. I don't think I've missed any nuclear bombs accidently detonating. For this reason over time nuclear power will claim more lives than atomik warfare.

chistletoe's picture

How long is it going to take for the analysts to realize

that Boeing cannot build the dreamliner,

or anything else,

without critical parts from Japan,

and they are never, ever,  going to arrive?

Oh well, I can afford to sit on my shorts and wait.

yurs truly,

Long John Silver

max2205's picture

Futures hit 7400 last week Now 9800

BTFD no matter what

Guarded Pessimist's picture

Two things that raise GDP

Healthcare costs


We can never have a cure for cancer and never have peace because it would ruin the economy.

cabernet's picture

I wonder when everyone will come to realize that a huge chunk of Japan, 200 square miles perhaps will become uninhabitable. An area that is densely populated is some areas and a big rice growing area in others. Lets not forget that this is an important port area as well. The wealth destruction is enormous. How can this be good? Yea, lots of work will need to be done to rebuild, but money will have to be borrowed to do it. This money could have been used to advance the society, not keep it's head above water. What's the good in a little GDP when years of development have been wiped off the map?





flattrader's picture

They will "get it" in the next few weeks when the winds change.

zero intelligence's picture

"Wow, this nuclear thing is a big mess. Maybe we should ask the French or Americans for help."

"Yes, unfortunately, due to the tsunami, many of our resources have been destroyed. We could ask for help."

"But it would be embarassing, no? Like we can't handle our own problems."

"Hmmm, yes, very embarassing."

"How about if we just get that computer program that makes the stock market go up like magic? You know, the one the Russian guy stole. It must be good, he's in jail now you know."

"Oh, that would be great. When people see the stock market going up, they will assume that things are getting better, although, actually, they are not getting any better because we don't have any resources and we didn't ask for help."

"I agree. But how can we get them to give that to us?"

"How about ... we promise not to sell our Treasury bonds."

"That could work ... but if we don't sell the bonds, we don't have enough money to fix the tsunami/nuclear problems."

"We don't have to fix the problems, we just need to make the stock market go up. Then it will be just like we did something, and we'll still have our Treasury bonds too."

"Win - Win! Winner!"

"I'll call Mr. Geithner immediately."


Campagnolo's picture

Japan has been in a fuck up situation since WWII...they took cars and tecnology to the top but apparently it was enough...Japan is very vulnerable and they know that...Seriously, the USA don't have to worry much about Japan been a threat, not even China, even when they are 1.6 billion....for some reasons I will be a little more worried about Russia and the quiet Germany.

camoes's picture

Bullish, BTF Uncertainty!


TruthInSunshine's picture

Shit is about to get real, bitchez.

The Bernank and central banksters money affinitive ways notwithstanding, I do believe a window of fantasy for shorts will be opening soon.

Git you game on, playas.

americanspirit's picture

At least some people in Japan are recognizing that there needs to be a massive relocation out of Tokyo with a dispersal of industries around the country to avoid the complete collapse that a 'big one' would cause if ( when) it hits Toyko. Good discussion here


Roger Knights's picture

Regarding the decentralization of Japan and the vulnerability of Tokyo to an earthquake:

In 1995 Peter Hadfield's book, "Sixty Seconds that Will Change the World" examined the economic effect of a hypothetical huge earthquake that devastated Tokyo. I.e., one much worse than the current one. But his analysis may still have insights about this one. Here's a synopsis of the book, from Amazon, where cheap used paperback copies are available:

"In the 1990s Tokyo will start to experience earthquakes culminating in a catastrophe on the scale of the 1923 tremor that killed 140,000 people. This time however the effects of such an earthquake in Tokyo will be world-wide. The collapse of Japan's industrial production will lead to a major world recession together with a dramatic fall in currency values and world GNPs. Peter Hadfield, a Tokyo-based journalist and former geologist, has talked in detail to Japan's leading geologists, engineers and economists. He predicts what will happen during and after the earthquake, and at its effect on the world economy. He also looks at the psychology that leads millions of Japanese to ignore the danger signals - even now, a vast new city is being constructed in Tokyo Bay - and at the corruption that spurs such developments on."

Here's the link: