JAPAN’S OPPORTUNITY

THE OPPORTUNITY FOR ECONOMIC RENEWAL IN JAPAN

It is still too early to comment definitively on the impact Japan's disaster will have on its economy, but, amidst the crisis, there is an opportunity for Japan's leaders to start a new era of regeneration and economic reform.

Yoshiki Takeuchi

Chatham House (Expert Comment), March 21, 2011

The direct economic impact of the crisis so far is not as devastating as the images on our television screens might suggest. The three prefectures that were most severely hit by the earthquake and tsunami - Iwate, Miyagi and Fukushima - collectively account for only 4.0% of GDP in Japan. The regional economy in this part of Japan is comprised largely of agriculture and fishing, and industrial output is relatively low. Cars, for instance, shipped from these prefectures and the Ibaraki prefecture account for only 1.8% of the total auto industry.

Furthermore, the financial situation of Japanese companies and banks is relatively healthy. In the past 10 to 15 years, companies have made significant progress in paying down corporate debt and can draw on sizeable funds available for investment or absorbing costs. The ratio of non-servicing loans banks hold is now down to almost 2% The private sector has a degree of stamina that should be able to help the economy endure difficulties caused by the disaster.

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