Japan was hit by an earthquake of magnitude 8.9 on March 11.
This massive earthquake led to major human tragedy in Japan killing more than
30000 people, leaving many injured, and many other still missing. The
earthquake and the tsunami also struck nuclear installations in Fakushima
Dai-chi power plant. Because of disruption in the power supply, the coolant
cannot be supplied to the nuclear reactors in the required amount, which raises
the risk of radiation leak. Already traces of radiations have been detected in
some of the food items and the water in Tokyo, which is located 220 KM south of
the Fakushima.
Impact on Japanese Economy - Since Japan meets about 30% of
its energy from nuclear based power plant,
power supply to most of the parts in
the country has been affected leading to closure of many factories. There has
also been widespread damage to the infrastructure because of which there has
been supply disruptions of many of the critical raw material components. Most
of the automakers including Toyota, Honda, and Nissan have closed their plants
for the lack of raw materials, and the reduced power supply. Manufacturers of
semiconductors, LCD displays, batteries etc have also shut down their plants
for at least next 2-3 weeks. Some of the major ports of Japan have been
affected by the crisis impacting both the exports and imports based industries
in the country. According to one estimate, cost of reconstruction is expected
to cross $300 Billion. Japan will find it difficult to fund this construction
because of its high debt which is already 200% of its GDP. Also the country has
witnessed lacklustre growth over last two decades, and this earthquake
triggered crisis might further push Japanese economy in downward spiral.
Impact on World’s economy – Japan is the third largest
economy in the World, after US and China. It is also the second largest buyer
of US funds. Since Japan will need money to fund its reconstruction, it might
cash in the US bonds. This will force US fed to buy these bonds, and which will
induce liquidity crunch in the US market. Similarly Japanese investment firms
have made lots of investment across world’s capital markets. The pullout of the
Japanese fund might lead to fall in stock prices in these markets in short
term. The other major impact of Japan’s earthquake will be on the crude oil.
Since most of the nuclear power plants of Japan have went offline, Japan will
depend more and more on crude oil to meet its energy needs. Japan has number of
oil fired power plants, and to meet its energy needs, it might buy more oil
from the world market. The crude oil prices, which were already on upward
trend, will see a further spike as a result of this. The rise in crude oil
prices will impact the world’s economy in short term. Japan is the major
producer of many of the items including auto components, semiconductors, LCD
displays etc. Disruptions to the production of these major items will lead to
the supply chain disruptions of these items in the world market. This will
delay the production of high end gadgets like smart phones, iPads, LCD TV,
laptops etc and cars. This will make a dent in the manufacturers’ profit.
Impact on India economy – Indian stock market dropped by
0.8% on the news of Japanese earthquake. But the market recovered next day.
Killer earthquake which hit Japan is expected to have a marginal impact on the
Indian economy. Most direct impact will be the pull out of Japan’s investments
in the Indian capital market. Japanese investment firms will draw money from
the Indian market to fund the Japanese reconstruction. This will have a
negative impact on the stock market in short term. Japanese have also made
investment in number of important infrastructure projects in the country such
as Delhi Metro, Delhi Mumbai corridor etc. These projects might see delay
because of lack of availability of funds. Surge in the crude oil prices because
of increased demand of oil in Japan will also impact the Indian economy which
is already reeling under inflation. Automobile companies will be negatively
affected by the crisis, since they depend on Japan for the supply of many of
their critical auto components. Also because of increase in the value of Yen
(as a result of lack of yen supply), there will be an increase in the cost of
these auto components. Japan’s refinery capacities have also been affected by
the quake. This will have positive effect on Indian petrochemical firms such as
Reliance. Indian .............................
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