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Japan- a year on

We all remember the shocking images from the Japanese tsunami and earthquake. With the anniversary of the disaster this weekend, we’re taking the opportunity to reflect on the on-going economic impact for Japan and its people.


Immediately following the quake and tsunami, Japan’s economy went into free fall. With damage in the hundreds of billions and the death toll in the tens of thousands, Japan lost a huge amount of both physical and human capital, threatening to pull the country into recession.

The Bank of Japan prepared to flood money markets with more cash than usual – partly to stop the yen from rising too much. Japanese firms and investors sold all their foreign currency in preparation for rebuilding their domestic economy, which would push up the value of the yen. This would make exports more expensive, stunting any hope of an export led recovery.

From a previously expected growth of 0.3%, the Japanese stock market took its biggest fall since 2008 – experts now predicted recession for Japan.

A Year On

A year has now passed, and Japan is yet to recover fully. This week Japanese reports showed a record current account deficit, with a shortfall of £3.4bn in January. This is a measure of how much Japan earns through overseas exports.

With Japan closing down 52 of 54 nuclear reactors following the tsunami, there have been widespread fuel shortages leading to increased expenditure on imports. Analysts also blamed the deficit on reduced exports during the Chinese lunar New Year holidays.

However, figures have shown that the Japanese economy contracted less than was expected. In the last three months of 2011, there was a shrink of 0.7% – much less than the 2.3% contraction that was previously expected.

With a 4.8% rise in capital expenditure, economists predict a return to growth this year. Exports look to increase, and the rebuilding of infrastructure will of course proceed further. There are, however, external risk factors, such as the Eurozone debt crisis and a strong yen, but experts still see the Japanese economy in better shape than first thought.

We hope to see Japan continue improving, and our thoughts will be with all the tsunami victims this weekend.


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