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Economy After Japan’s Earthquake

Introduction

Though the impact of Japan’s recent earthquake has not been completely quantified, it is no secret that the country has significantly been economically dented by the natural disaster. When compared to a similar disaster that hit Japan in 1995 (Kobe earthquake), the recent earthquake measured 8.9 while the Kobe earthquake measured 6.9 (Witherell, 2011, p. 2).

In 1995, it was estimated that the Kobe earthquake affected about 12% of the country’s gross domestic product (GDP) because the earthquake mainly hit the industrialized part of the country but the Tohoku earthquake (the 2011 earthquake) is estimated to have affected about 7.8% of the country’s GDP. Considering Japan is one of the world’s major exporters, the impact of the earthquake is not only felt in Japan but every market that depends on the Asian giant.

Japan is not the only nation that has been affected by a natural disaster; other nations such as Haiti (earthquake) and the United States (Hurricane) have also been affected by similar disasters. Such kind of natural disasters often have a significant impact on the affected economies. However, experts have often noted that the impact of a natural disaster on a nation’s economic growth is often underestimated. It is therefore in the interest of this study to propose precise indicators that can be relied on when estimating the economic impact of a natural disaster with the magnitude of Japan’s recent earthquake. Japan will therefore be used as a case study of an ideal exporter and a financial giant in the world’s economic map.

Motivation

Though Japan was significantly affected by the Kobe earthquake, the country had a spare production capacity that could shoulder the effects of the earthquake (Witherell, 2011, p. 4). In 2011, the same capacity is still in existence but the magnitude of the earthquake is higher than the 1995 earthquake. The recent earthquake is said to be a triple-disaster because it happened on three fronts: the first was the earthquake, the second was the tsunami, and the third was the destruction of a nuclear plant (which threatens the environment because of its radioactive discharge).

Such kind of disaster is simultaneously likely to impact the country’s infrastructure, which in turn, affects the overall economic growth of the country (since the country’s infrastructure acts as the vein of the economy) (ABC 2011, p. 3). Moreover, the government’s efforts are likely to be directed at rescue and rebuilding efforts, as opposed to economic growth initiatives.

Japan plays a very crucial role in the world economy considering the country is home to some of the world’s biggest global brands such as Toyota, Honda and Sony (Schlesinger, 2011). Already, there are increased worries about the country’s ability to sustain its production levels (after the earthquake) since certain companies such as Toyota and Philips announced the close of some of its main plants (The Guardian, 2011, p. 1).

This trend is likely to impact the price of affected goods because their supply will not be able to sustain the demand. Some of the major economic markets bound to be affected by the closure of some of Japan’s major plants in the automobile sector include its primary markets in Asia and Africa. The sale of motor vehicle parts, for instance, is also set to be affected by increased prices. However, the impact of the earthquake is feared to be bigger because insurance experts are expressing fear that several insurance companies may collapse, or become bankrupt, due to the number of increased claims as a result of the disaster (ABC 2011, p. 3).

There are also increased concerns in the global market of the effects of Japan’s earthquake on global economic recovery efforts because Japan is the world’s third largest economy and it is feared that the earthquake will derail efforts to recover from the recent global economic crisis (The Guardian, 2011, p. 1). In reference to the Japan earthquake, many experts have increasingly made reference to the Kobe earthquake, with increased optimism, because though the country suffered significant financial setbacks (of about 100 billion dollars), its stock market gained ground in a matter of days (The Guardian, 2011, p. 3).

Nonetheless, the recent Japan earthquake could not happen at a more unfortunate moment because the world’s economy is more interlinked today than it was decades ago. For instance, the American stock market has only started reacting to the unrest in Middle East and its stocks are estimated to have fallen by a margin of two percent as a result (The Guardian, 2011, p. 3). However, it is estimated that several manufacturing plants in Japan are outsourced to other pats of the world (especially in other Asian countries such as China) and therefore fears of a bleak future for Japan’s economy is downplayed.

All these events happen in Japan when it has been enjoying a good economic tide, especially after it posted an economic growth of about 3.9% in the year 2010 – a percentage that pits it as one of the best performing economies of the developed world (Witherell, 2011, p. 12). Though Japan is a classic example of the effects of natural disasters on the economy; other countries affected by several natural disasters have not totally recovered from their effects. Such is the case in Haiti where the country is still grappling with the aftermath of the earthquake, months later, because increased concerns of shelter; health; a battered economy and massive unemployment still plague the island.

It is therefore important to know the extent natural disasters can have on a country’s economy because such calamities normally have ripple effects which cannot be comprehensively estimated (especially at the initial stages of the occurrence of a natural disaster). These intrigues abound, some experts have noted that the effects of the Tohoku earthquake in Japan will not be extensive as previously estimated because according to their professional view (factoring in the precedent set by the 1995 earthquake); Japan’s earthquake will only have a “transition” effect on the economy (Witherell, 2011, p.1 2). However, this assumption is met by a lot of skepticism by other experts who object by saying:

“We hope this proves to be the case, but based on the limited information we have to date, we think there is a certain risk the Japanese economy will be hit harder and take longer to adjust than was the case in 1995” (Witherell, 2011, p. 12).

Problem Statement

The Tohoku earthquake represents one of the most sophisticated forms of natural disasters considering its “triple-disaster” nature. Already there are signs of a downturn in Japan’s economic prospects with the Nikkei 225 index plunging by about 1.7% in the first minutes that the market stayed open after the earthquake (Witherell, 2011, p. 22). In 1995, the same trend was observed, with the Nikkei falling by 8% in the initial weeks of trading; showing a lack of investor confidence in the country, after the natural disaster. In the same year (1995), the Nikkei 225 took a further dip throughout the months, up to June, to register a total drop of about 24% (Witherell, 2011, p. 22).

Though it is said that trade tensions between the US and Japan may have contributed to the fall of the Nikkei, what remained appalling was the erosion of investor confidence in the Japan market after the natural disaster (Witherell, 2011, p. 22). In fact, it was observed that investor confidence in the Japan economy withered more than the macroeconomic indicators showed then. The Tohoku earthquake is a worse example of the effects of a natural disaster because the events of the nuclear plant destruction are still unfolding and concern is not only harbored by Japan’s investors but also by Japan’s consumers. With such dangers nigh, it becomes increasingly difficult to establish the degree of the natural disaster on the Japan economy.

This study seeks to provide the most accurate impact of the natural disaster on Japans’ economy by factoring in all the relevant information and market intrigues that can comprehensively provide an insight into Japan’s economic forecast over the coming few months. With the accomplishment of such an objective, this study will be a guiding principle to the estimation of the economic impact of natural disasters, not only in Japan but other economies as well. Japan provides a good example for this study because the Tohoku earthquake is one of the worst from of natural disasters and Japan is one of the world’s biggest economies. Many countries can therefore borrow a leaf from this study, regarding the estimation of the impact of natural disasters on the economy.

Hypothesis

This study establishes that Japan’s economic impact will be severe than most experts estimate. This hypothesis will be inductive in nature because it will rely on observations currently being evidenced in the Asian country (Greenspun, 2000). Especially, the hypothesis is based on the nature and magnitude of the earthquake as opposed to the precedent earthquakes of a similar magnitude to have hit Japan or any other country.

Research Methodology

Population

Apart from factoring in economic information regarding the estimation of economic patterns, expert opinion will be sought. The experts to be sourced will constitute the population sampled. Collectively, expert opinion will be sought to add to the existing information regarding Japan’s earthquake and its economic impact. Of the experts, five will be geological experts (specialized in disaster preparedness and management) while the other five will be financial experts, with an experience in natural disasters and their impact on the financial markets. Moreover, the expert opinion sought will also act as a reference point to the conclusion derived from undertaking the independent study.

Data Collection

Data will be collected using secondary means. This means that information regarding the existing situation in Japan will be of high use because it is not practicable to go to the ground and gather such sort of information (for instance, the nuclear plant destruction in Japan). The secondary means of data collection will not only include statistics concerning Japan’s economic situation after the earthquake, but also applicable economic progressions done in earlier years, as well as the current nature of the world’s global economy. However, emphasis will be made on the role of Japan’s economy in the global economic map because this aspect will be useful in quantifying the extent to which the economic disaster will affect Japan’s imports and exports. The data collection stage will constitute the first stage of the methodology and it is estimated to take about three months.

Data Analysis

Computer-based data analysis techniques will be used in this study to estimate the correlation between Japan’s natural disaster and its economic impact. The computer-aided techniques will be used to develop a statistical estimation of the magnitude of the earthquake, viz a viz the economic indicators present. Comprehensively, the figures derived will expose the kind of relationship existing between the occurrence of natural disasters and their economic impact. To gain a comprehensive picture of the data analysis methods to be used, the study will use a multivariate analysis of multiple measurements concerning the earthquake and its effect on the economy. The data analysis stage will be the last stage of the methodology and it is estimated to take about three months.

Clarification of Concepts and Terms

  • Kobe – the earthquake disaster that hit Japan in 1995.
  • Tohoku – the earthquake disaster that hit Japan in March, 2011.
  • Geological – refers to the discipline focused on studying natural environment.

Framework

The proposed framework of the study constitutes five sections. The first section will be the introduction section. This section will start by introducing the topic of study which is intended at drawing the attention of the readers to read the subsequent sections of the study. The thesis of the research will also be stated at the introductory stage of the study to include a well constructed topic sentence that intends to exposé the direction that the rest of the study will move.

Moreover, the subjects touched in subsequent sections of the study will also be included in this part of the study, besides how they are planned, or what they will be talking about. Generally, the introductory part is expected to introduce the study, but comprehensively, it will include statistics relating to the Japan earthquake disaster and its nature. Facts relating to events after the disaster will be explained in this section of the study, including how they are related to the economic situation of the country.

The second part of the study will be the literature review section. The literature review section of the study constitutes the collection of materials concerning the Japan disaster and its impact on the economy. The kind of documents to be included in this section will be books, journals, websites and other relevant materials providing a good insight into the aftermath of the Japan disaster. It is important to note that, personal opinions will not be reflected at this stage of the study.

The literature review constitutes both the summary and the synthesis of the summary (but in different segments). The aim of this section will be to act as a guide to the rest of the research paper, through the provision of an overview of what to expect in subsequent section of the study. For the researcher, the literature review section will act as a stepping-stone for the rest of the study.

“Research methodology” will constitute the third section of the research paper. This section of the study explains what procedures or methods were adopted to derive the study’s findings. The research methodology will also outline the goal of the study and how the goal will be achieved. In the research methodology, there will be several sections. The first section will outline the data collection methods (all the methods used to achieve the research goals through data collection). Elements of the study, such as the material used, experts consulted and the time period that the research lasted, will be included in this part of the study. The second subsection of the study will entail the analysis of the data and it will include all the systems used to draw the conclusions derived from the study.

“Research Findings and Discussion” will constitute the fourth part of the study. In this section, the findings derived from undertaking the research will be stated. Also, at this point of the study, personal inferences will be included and comparisons made. Any interesting observation will also be stated at this point of the research. Specifically, the extent which the Japan earthquake has on its economy will be estimated and the proportion of the disaster comprehensively stated.

Lastly, the “conclusion” section completes the study. This section will be used to reiterate the findings stated at the “research findings and discussion” section of the study. I will also try to convince the reader to see my point of view, regarding the research topic and the implied relationship. To achieve this goal, the conclusion section encompasses my feelings and arguments in a summary form. In detail, I will summarize the key indicators to watch when trying to estimate the impact of natural disasters on the economy, in a sentence or two. A reiteration of the thesis will also be made at this point of the study.

References

ABC. (2011). Considerable’ Economic Impact from Japan Quake. Web.

Greenspun. (2000). Deductive vs. Inductive. Web.

Schlesinger, J. (2011). Japan Earthquake: Economic and Market Impact. Web.

The Guardian. (2011). Japan’s Economy Heads Into Freefall after Earthquake And Tsunami. Web.

Witherell, B. (2011). The Real Economic Impact of Japan’s Earthquake. Web.

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StudyKraken. (2022, March 27). Economy After Japan’s Earthquake. Retrieved from https://studykraken.com/economy-after-japans-earthquake/

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StudyKraken. "Economy After Japan’s Earthquake." March 27, 2022. https://studykraken.com/economy-after-japans-earthquake/.

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StudyKraken. 2022. "Economy After Japan’s Earthquake." March 27, 2022. https://studykraken.com/economy-after-japans-earthquake/.

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