Japan’s Financial Aftershock

[Geee]

National Review:


As costly as the Japanese earthquake was in both property and human lives, it could have been immeasurably worse. Because Japan is a wealthy nation, it can afford to earthquake-proof buildings, construct a resilient infrastructure, and maintain an emergency-response capability that has saved many lives already and will save many more in the immediate future. Moreover, Japanese wealth almost guarantees a rapid recovery, and that the long-term effects of the earthquake are likely going to be minimal. I use the word “almost” because Japanese officials have done quite a bit of damage to the country’s fiscal structure in the last decade, enough that there are some who question if Japan can find the funds that recovery requires without causing a financial panic. Still, if we take as a benchmark the 1995 Kobe earthquakes, which caused over $100 billion in damage and killed almost 6,500 people, then many of this catastrophe’s impacts are predictable.

After the 1995 earthquake, the Nikkei and the yen each plunged by approximately 25 percent over several months. Both, however, had mostly recovered by year’s end. Most of Kobe’s residents were back at work within a week, the subway was reopened in three months, and round-the-clock work crews had the port fully operational in weeks. The Japanese government, despite being in serious economic straits, financed 90 percent of the rebuilding. I expect the recovery from the most recent disaster will be just as rapid. Despite the earthquake being 700 times more powerful than the one that turned Haiti into a basket case last year, most Japanese buildings withstood the shaking. Still, recovery costs will likely run as much as half a trillion dollars, and once again the Japanese government will have to assume the bulk of the expense. It will find doing so much harder than in 1995.