Japan economy to remain resilient in quake aftermath: DBS

Government borrowing is sure to rise and given Japan’s already high (1.8x to 1.9x) debt:GDP ratio, some believe bond yields are likely to rise.

According to DBS, the low impact is based on the order of tens of billions of US dollars rather than hundreds of billions.

By comparison, recall the US congress set aside $750bn of TARP funds to prevent financial sector turmoil there in early 2009.

Much of the damage will plainly come in the form of lost property and infrastructure with insurance companies and re-insurance companies shouldering most of the burden.

Government borrowing is sure to rise and given Japan’s already high (1.8x to 1.9x) debt:GDP ratio, some believe bond yields are likely to rise. While possible, demand for low risk assets (govt bonds) historically tends to rise during times of turmoil, lowering yields rather than raising them.

Industrial production and trade will surely fall in the short-run (1-2 months) but both are likely to surge in the medium-term, not only as lost production is made up for but to replace capital (stock) losses as well.

Indeed it is one of the peculiarities of GDP accounting that disasters may cost and economy dearly in terms of lost stocks (houses, factories, roads, etc.) but in the flow terms that GDP represents, new production rises rather than falls.

All estimates, economic and humanitarian, plainly remain contingent on the resolution of difficulties at nuclear power facilities, where two reactors are believed to have experienced partial meltdowns.

Authorities have been pumping seawater into the facilities to replace coolants lost in the earthquake and thus prevent further meltdown.

The degree to which this has been successful remains vague.

Authorities say that so far the steel vessels that surround / contain the core have not been breached, something which reportedly would have to occur for current problems to turn significantly worse.