Kimimasa Mayama/European Pressphoto AgencyThe infrastructure in northern Japan was damaged by the earthquake and tsunami, as at this petroleum refining plant.
March 13, 2011
By STEVE LOHR
As the humanitarian and nuclear crises in Japan escalated after the devastating earthquake and tsunami, the impact on the country’s economy appeared to be spreading as well.
While the nation’s industrial clusters in the south and west seemed to be spared the worst, the crisis at damaged nuclear plants north of Tokyo was threatening to cause an energy squeeze that could set back all sectors of Japan’s economy.
To help bring electricity back to the devastated areas, utilities across Japan are cutting back and sharing power, imposing rolling blackouts that will affect factories, stores and homes throughout the nation. The emergency effort is expected to last up to two weeks, but could take longer.
“The big question is whether this will seriously affect Japan’s ability to produce goods for any extended period of time,” said Edward Yardeni, an independent economist and investment strategist.
The bleak outlook prompted a 6.2 percent plunge in the Nikkei 225 stock index in Tokyo on Monday, as companies from Sony to Fujitsu to Toyota scaled back operations.
The Bank of Japan, in an effort to preempt a further deterioration in the economy, eased monetary policy on Monday by expanding an asset buying program.
‘‘The damage of the earthquake has been geographically widespread, and thus, for the time being, production is likely to decline and there is also concern that the sentiment of firms and households might deteriorate,’’ the central bank said in a statement.
To try to stabilize the markets and prop up the economy, the central bank earlier Monday poured money into the financial system.
Assembly plants for Japan’s big three automakers — Toyota, Honda and Nissan — were closed on Sunday and planned to remain closed on Monday. Toyota said that its factories would be closed at least through Wednesday.
Automakers said some plants experienced damage that was not extensive, but damage to suppliers and to the nation’s transport system and infrastructure was expected to affect their ability to make and move their products.
Japan’s economic outlook, already problematic, is now even more uncertain, economists and analysts say, because the dimensions of the disaster remain unclear, especially at the damaged nuclear plants.
“The Japanese economy threatens to suffer another bout of recession,” said Mark Zandi, chief economist of Moody’s Analytics.
Economic activity in Japan contracted in the fourth quarter of 2010, and the country was overtaken by China as the world’s second-largest economy, after the United States. Activity may well shrink for the first half of this year, Mr. Zandi said, though he predicted that the rebuilding efforts in the aftermath of the quake would help provide a rebound in the second half.
Rebuilding costs that could run in the tens of billions of dollars may require Japan to make tough decisions about government spending, economists say. Its ratio of government debt to the economy’s annual output is already at 200 percent, the highest among industrialized nations and far higher than in the United States, for example. So reconstruction, economists say, may make cuts in government spending elsewhere a necessity.
The yen is expected to strengthen against the dollar, as Japanese investors bring money back from overseas to shore up their savings and provide money for the rebuilding campaign. Those financial flows back into Japan will drive up demand for the yen, increasing its value. After the Kobe earthquake in 1995, the yen rose about 20 percent against the dollar over a few months.
One ripple effect could be a reduction in demand for United States Treasury bonds, adding pressure to American interest rates, according Byron R. Wien, vice chairman of Blackstone Advisory Partners. The Japanese have been large buyers of United States bonds, but, Mr. Wien said, “they are going to be using their money to rebuild, so they will be smaller buyers of our debt securities.”
If energy curbs and infrastructure damage hinder production in a significant way, it could harm Japanese companies and affect consumers abroad. Japanese automakers have shifted much of their manufacturing overseas in recent years. But some popular models are still made in Japan for export, including fuel-efficient cars like the Toyota Prius and the Honda Fit. Disruptions in exports could hurt sales at a time when rising gasoline prices have increased demand for those cars in the United States.
Japan is also a crucial global supplier of electronic goods and parts used in an array of industrial and consumer goods. The country produces an estimated 40 percent of the lightweight chips used to store data in smartphones and tablet computers, and it is also a leading maker of liquid crystal displays used in consumer electronics products.
Most high-tech goods these days are produced through carefully orchestrated procurement and manufacturing networks that combine parts from around the globe, often shipped on tight daily production schedules. Even temporary shortages can drive up prices sharply for a while.
The daily spot market for certain kinds of semiconductor chips will most likely feel the impact soonest. “There will be a lot of nervousness,” said Jim Handy, an analyst at Objective Analysis, a semiconductor research firm. “This may cause phenomenal shortages in the spot market.”
Companies with chips that have gone only part way through the manufacturing process would most likely have to backtrack a step and rework those chips when the power returns. Doing so could add a day or two to the time required to finish a batch of chips.
“You’re going to have productivity losses,” Mr. Handy said.
Klaus Rinnen, managing vice president at Gartner, a technology research company, said a colleague in Japan, near Tokyo, told him that he was scheduled for rolling blackouts twice a day. However, shutting off power to chip manufacturers twice a day would be impossible to manage, he said, because fluctuations in power create defects and high losses.
Water is also an important component of the chip-making process, Mr. Handy said, and any cut in water supplies or an increase in contaminated water would hurt production.
In the end, only large important customers may end up getting their chip orders, Mr. Handy said. Even those will most likely receive less than their contracts stipulate.
Sony’s six factories in the region affected by the earthquake were all damaged, and the company said it had no clear idea when they would reopen. All the facilities have halted operations.
The destruction was most severe at a plant in Miyagi Prefecture that makes Blu-ray discs and magnetic tapes. The tsunami flooded the first floor and the surrounding area, forcing nearly 1,150 workers and 110 neighbors to seek safety upstairs. On Saturday, Sony chartered a helicopter to deliver supplies to those trapped.
By Sunday afternoon, all but 20 had left the plant to check on their families and homes.
Freescale Semiconductor’s plant in Sendai, which makes chips for the automotive and consumer electronics industries, was also shut down. All employees were safely evacuated, the company said.
The overall effect on the technology market, Mr. Handy said, would be serious.
“It looks like it’s going to be pretty awful — the electricity, the water, the railroads — there could be plants that shut down,” he said. “All those things are going to cause problems. Just pile all that together and it’s all bad.”
In the global energy market, there are already signs of a reaction to Japan’s troubles, with the expectation the country will turn to liquefied natural gas to replace electricity output lost at the damaged nuclear plants. Two tankers at sea, carrying liquefied natural gas from Russia, have been diverted to Japan, according to industry reports.
“Liquefied natural gas will be the default fuel to replace the electricity generation Japan has lost,” said Daniel Yergin, chairman of IHS Cambridge Energy Research Associates. “Liquefied natural gas tankers will be diverted to Japan, the market that needs it the most, and desperately so.”
Nick Bunkley and Verne G. Kopytoff contributed reporting.
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