Deadly Japan quake risks fiscal crisis

“The greater the social and economic damage,the larger the threat to the government’s ability and willingness to ward off a fiscal crisis,” added the report written by economists Julian Jessop and David Rea.

ING economists underscored the fragile state of Tokyo’s finances,while Carl Weinberg at High Frequency Economics in the United States said that this was a sad day for Japan and “economic aftershocks could affect the whole world’s economy” as a result of this.

Counterparts at the Japanese bank Nomura were less alarmed,noting that the huge Japanese quake that hit Kobe in 1995 had not seriously harmed the economy in the medium term.

More than 1,000 people probably died in the massive 8.9-magnitude earthquake that hit Japan today,unleashing huge tsunamis along its Pacific coast,Kyodo News agency said.

“The impact on local people is of course foremost in everyone’s minds,” Capital Economics noted.

“But the financial markets also need to consider the economic costs and the implications of the disaster for the public finances. These could be considerable.”

Japan is burdened by the industrialised world’s biggest debt,which runs close to 200 percent of gross domestic product (GDP).

Economists stressed however that the earthquake was not of the same impact as the devastating quake which ravaged Kobe.

“This disaster is probably not the ‘big one’ that seismologists have long been fearing,” Capital Economics said.

“Mercifully,the scale appears to be much less than that of the Great Hanshin-Awaji earthquake that hit Kobe on January 17,1995.

“The Kobe earthquake left 6,434 dead and about 300,000 homeless,and caused damage estimated at 10 trillion yen (USD 100 billion at the exchange rates of the time).”

That was equivalent to around 2.5 per cent of Japan’s 1995 GDP,Nomura senior economist Takuma Ikeda told a telephone news conference.

This time,the area hit hardest hosts industrial zones with chemical and electronics plants,an area that accounts for about 1.7 per cent of Japan’s total output,” Nomura chief European economist Peter Westaway said.

“The impact on overall activity is not going to be that great,” he estimated but it “might then have a knock-on effect on confidence in the JGB (Japanese government bond) market.”

Ikeda stressed that in 1995,the economy bounced back within two quarters,but the latest earthquake could not have been timed much worse for Japan,according to Capital Economics.

The Japanese economy shrank by 1.3 per cent in the three months to December,compared to a year earlier,official data had showed yesterday. That was worse than the initial estimate of 1.1 per cent.