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March 22, 2011

Japan Quake is World's Costliest Natural Disaster

The Japanese government says the cost of this month's devastating earthquake and tsunami may reach $309 billion, making it the world's most costly natural disaster.

The government said Wednesday that it estimates the damage to houses, roads, utilities and businesses could range from at least $198 billion to the $309 billion figure. Either total would easily top the cost of the previous worst disaster, the vast destruction Hurricane Katrina wreaked on New Orleans and the Gulf Coast region of the United States in 2005. The insurance industry estimates Katrina caused $125 billion worth of damage.

The Japan damage total could go higher because the government's estimate did not include possible wider effects on the country's economy, such as reduced factory production caused by planned power outages, or the effect of nuclear radiation leaks on the nation's food and water supply.

One financial analyst, Bank of Japan board member Ryuzo Miyao, said the stress on the world's third largest economy "could linger for some time" and that the short-term effects "are not insignificant."

Japan's government has yet to say how it plans to refinance reconstruction of the country's northeastern sector that bore the direct hit from the March 11 earthquake and the tsunami that quickly followed. The government's debt is already twice the size of the country's $5 trillion economy, the highest among industrialized nations.

Economists say the country should have little trouble borrowing money to refinance the reconstruction effort, but the more Japan borrows, the higher its interest costs are likely to be.

At the moment, numerous large manufacturers in Japan, such as automakers Toyota and Honda, and Sony, the consumer electronics firm, have all closed manufacturing plants or sharply curtailed their operations. Factories for numerous industrial companies were damaged by the twin natural disasters and many cannot now get the supplies they need to resume production.

Analysts are particularly concerned about power generation in the coming months. Tokyo Electric Power, which serves Tokyo and the surrounding region that accounts for 40 percent of the national economy, lost 20 percent of its generating power and may not be able to restore enough of it to meet peak summer power demands.

Some information for this report was provided by AP, AFP and Reuters.