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Economic Price Tag Rising for Japan Quake


Earthquake and tsunami aftermath in Ofunato, Japan, March 16, 2011

Earthquake and tsunami aftermath in Ofunato, Japan, March 16, 2011

The economic cost of the worst natural disaster in Japan's history continues to rise. Experts are saying the devastating combination of earthquake, tsunami and now - the deepening nuclear crisis, is likely to result in bigger-than-expected financial losses for the world's third largest economy. A week after the nation's worst natural disaster, the threat of a nuclear meltdown is emerging as the biggest threat to the country's economic recovery.


At the Fukushima Daiichi nuclear plant, water cannons spray jets of water to cool overheating nuclear reactors. But scientists say that's like using a squirt gun to put out a forest fire.

Market analyst Will Hedden says uncertainty over the outcome is driving volatility in financial markets. "We are still in a state of panic. And we are still not seeing any end in sight to that volatility and a lot of worries persisting over the ongoing problems in Japan," he said.

Japanese officials say damage is now likely to cost more than the 1995 earthquake in Kobe that resulted in losses of more than $100 billion.

"The early estimates from analysts and economists is $180 billion in damages. Of course the crisis is escalating. If you throw in the radiation scare and people from overseas are going to stop coming to Japan, the hit on tourism - obviously the number could go up from there," said Nathan Layne, Reuters Tokyo Bureau Chief.

Adding to worries is damage to the country's power grid. Auto analyst Paul Newton says rolling power outages have severely crimped factory production, especially in auto plants across the country. "Companies are not producing vehicles simply because of the power outages, not because they're short of components or had their plants devastated. It's really a question, they can't make them, there's no electricity," Newton said.

But some see light at the end of the tunnel.

"The difference again between this event and the one in 1995 is that northeastern Japan is not a manufacturing hub of the Japanese economy. We've seen several factories shut down most notably in the auto industry, rolling power outages to conserve energy - that could also impact exports in the short run but once the reconstruction effort is under way, that could eventually boost the economy," said Nicolas Szechenyi, who heads Japanese studies at the Center for Strategic and International Studies in Washington.

Japan is expected to finance reconstruction by selling government bonds.

But experts say that will have long term implications for the future of the world's third largest economy -- increasing the price of Japanese goods and adding to the nation's already high debt load, now roughly double its gross domestic output.

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