Japan's business world personally felt the impact of the devastating attacks in New York and Washington, since many Japanese companies had U.S. headquarters in the World Trade Center. Japan is also highly vulnerable to a further downturn in the U.S. economy.
At least 32 Japanese companies had offices in the World Trade Center, including well known financial institutions such as Fuji Bank and Nomura Research. For many in the Japan business world, this has made personal identification with the tragedy strong and has led to many expressions of grief and sympathy.
Japan's overall economy could also be affected by the devastating incidents in the United States. Hundreds of Japanese companies are at risk of failing, following the worst terrorist disasters in history.
The United States is Japan's biggest export market, taking about one-third of the country's exports. Companies of all sizes, from carmakers to electronics manufacturers, say they fear a further decline in U.S. consumer sentiment following the terrorist attacks. With Japan's own economy on the brink of recession, Japanese firms depend more than ever on sales to America. Some warn that they could soon face bankruptcy.
Desmond Supple is an economist from Barclays Capital in Singapore. He agrees that Japan faces tremendous exposure right now. "I think that Japan's economy is acutely vulnerable to any risks of slower global growth because the economy itself is so fragile," he said. "If we look at the Euro zone, at least there is some resilience to any potential U.S. downturn from the fact that there are signs of stabilization of output. But Japan is heading for a deepening deflationary recession."
In the aviation sector, Japan Airlines and All Nippon Airways say they have lost between $2-million to $4-million a day since the unprecedented terrorist attacks occurred. Like other airlines around the world, the two have cancelled many flights to the United States.
Japanese carmakers say their businesses will suffer if U.S. demand slows even further. Toyota, Nissan, and Honda, Japan's top-three carmakers, count on American consumers for as much as 30 percent of their sales.
Japan's ailing banking system, already weakened by $18-billion in bad loans, is also vulnerable to events in the United States. Japanese banks are heavy investors in equities. If world stock markets continue to drop, the banks will suffer further losses on their portfolios.
But analysts say that Japan's ultra-loose monetary policy is helping to minimize the chance of a credit squeeze at a major Japanese financial institution.
The Bank of Japan made a bold move Wednesday. It injected $16-billion into its financial markets to encourage stability in the wake of the terrorist attacks.