Japan's industrial heart escapes heaviest blows

As bad as the toll might eventually be in lives and property from Japan's earthquake and tsunami, the fact that the disaster hit far from Japan's industrial heartland will at least soften the economic blow, both at home and abroad.

The epicentre was in and around the coastal city of Sendai, nearly 200 miles northeast of Tokyo, the nation's population centre, and well north of Japan's primary manufacturing region running from Nagoya to Osaka and farther south and west.

If this had been a couple hundred miles to the south, the economic and human toll would have been almost incomprehensible," said Marcus Noland, a senior fellow at the Peterson Institute for International Economics. "In that respect, Japan dodged an enormous bullet here."

The disaster could prompt the Japanese government to pump more money into the economy, analysts say, and is very likely to result in increased public spending on buildings and roads.

And it could propel Japan's already strong currency, the yen, even higher against the dollar and other global currencies, as Japanese money invested abroad returns to help in the rebuilding. In global currency trading on Friday, after the earthquake, the yen did edge higher.

Japan is a major exporter of cars, consumer electronics goods, and parts and sophisticated industrial machinery. In the wake of the disaster, some factories were shut down temporarily. Japanese ports were closed, and so were several airports, including Narita International Airport, which serves Tokyo.

The ripple effects, analysts say, are likely to be some delays in shipping goods, and possibly higher prices in certain products and components. But the impact is expected to be relatively modest and short-lived.


Japan, for example, produces 40 percent of lightweight memory chips most commonly used for storage in digital music players, smart phones and tablet computers, estimated Jim Handy, an analyst at Objective Analysis, a research firm. But most of the plants that make such chips, and other electronics components, are south and west of Tokyo.

Still, a high-tech factory does not have to topple to halt production. A strong shaking, like that generated by the magnitude-8.9 earthquake -- the most powerful ever recorded in Japan, and felt across much of the nation -- can upset the delicate machinery used in production.

Recalibrating the machines, analyst say, can take a week or two, crimping supplies.

"We do expect some upward price pressure because of this," said Dale Ford, an analyst at IHS iSuppli, a technology market research firm. But it is too soon, Mr Ford noted, to predict how much prices might rise, though it should not have a long-term impact.

Because Japan occupies an unstable slice of the earth's crust and tremors are a routine part of life, Japan's government, scientists and industry are almost continually engaged in moderating the impact of earthquakes through innovative building designs, strict construction codes and advance planning.

Japan's major automakers, for example, have long had contingency plans in place to keep supplies moving. Car companies on Friday did report damage to some factories and offices, and Honda said one employee was killed at a research centre in Tochigi, north of Tokyo, when a cafeteria wall collapsed.

Toyota, Japan's largest automaker, reported that its car assembly plants had resumed production after a brief stoppage -- though four factories operated by Toyota subsidiaries remained closed while workers were evacuated to safer areas.

But most of Toyota's Japanese production is done south of Tokyo, especially around Nagoya, including the Prius hybrid, which is built only in Japan.

And over the past two decades, the Japanese automakers have shifted a large portion of production of cars sold for the United States to American plants, while Japanese parts suppliers have set up shop in North America as well.

"Given their contingency plans for earthquakes, and all the production done abroad these days, I'd be amazed if this had a real impact on Toyota or other leading Japanese car companies," said Clyde V. Prestowitz Jr., a Japan expert and the president of the Economic Strategy Institute, a nonpartisan policy research group in Washington.

In 1995, after the devastating earthquake centred in Kobe, a port and industrial city, which killed more than 6,000 people and caused more than $100 billion in damage, the yen rose in value against the dollar 20 percent in the following two months. Some analysts predict that the yen will strengthen in the wake of this earthquake, too.

Why would a disaster cause a nation's currency to gain in value? In Japan's case, the answer lies partly in the country's high savings rate and sizable investments abroad. "As households see their physical assets destroyed, need funds for reconstruction and become more risk averse," Michael Hart, an analyst for Roubini Global Economics, wrote on Friday, "they are likely to repatriate their savings."

In doing so, they would convert their foreign holdings back into yen, increasing the demand for the Japanese currency, thus driving up its value. Still, a strong yen could pose problems for Japanese exporters, by making their products relatively more expensive on the global market.

For Japanese consumers, spending to increase household inventories of food and other daily necessities will probably increase, but outlays for luxury goods and services, notably tourism, will fall sharply, Masaaki Kanno, a Tokyo-based economist for JPMorgan Securities, predicted in a note to clients.

Japan's central bank announced on Friday that it would speed up its monetary policy meeting, to conclude on Monday instead of Tuesday. The bank, analysts say, is expected to add to the money supply, probably by expanding a program to buy government bonds and thus inject more funds into the economy.

The disaster, economists say, may well prod Japanese policy makers to increase government spending to stimulate the economy, despite adding to the nation's sizable debt burden in the near term. And private investment on construction should increase as well.

"There should be some positive impact because of the rush to rebuild," said Edward J. Lincoln, a Japan expert at New York University's Stern School of Business. "Perversely, you may have an economic benefit from this over the next year or two."