On March 22, 2011, the Japanese government estimated that the physical damage from natural disasters arising on March 11, 2011 could reach JPY16-25 trillion (USD197-308 billion). One month after the initial explosions and radiation leakage from Fukushima Daiichi power plant, the crisis has been partially solved and electric power shortages continue, so the economic damage may rise higher than expected by the Japanese government.
Recently, there have been negative signals arising from their production sector as seen in the Purchasing Manager and Tankan Business Condition indices for March. This is due to production and industrial exports affected by the shortfall in available electric power, thus causing problems worldwide due to falling output of capital goods manufactured in Japan. In addition, the radiation leakages have dampened confidence toward Japanese exports of farm produce, as well as incomes of tourism business. This will of course affect global supply chains.
KResearch, therefore, expects that the Japanese GDP may decelerate in 2011 to 0.8 percent YoY, and could contract by 0.4 percent growth QoQ in 1Q11. In addition, it may sink into a deeper contraction of 1.4 percent in 2Q11, but may show growth during 2H11 after infrastructure and building are restored.
Moreover, this incident may affect LNG (liquefied natural gas), coal and refined oil prices due to Japanese imports needed to compensate for their current lower production and losses in energy production at the damaged nuclear power plant. Also, iron and copper prices may increase globally because they will be needed to accelerate restoration in Japan during 2H11, thus possibly spurring such commodity prices globally over the year.
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