A huge earthquake recently hit Japan. The already stagnating economy of the Far Eastern ex-powerhouse country is facing major challenges. How will this country and its forex market perform? Below is an insider view.
Further adverse effects on the Japanese economy seem inevitable from these earthquake-related damages in addition to the financial problems to which Japan has already faced. Many foreign experts have expressed pessimistic opinions that self-recovery of Japanese economy is unlikely. At the same time, Barron has expressed a bullish view of its economy and certain stocks. Is the recovery of Japanese economy hopeless? Did Japanese yen become a currency that would not be worth investing?
Let us, first, analyze the commentaries of overseas expert on Japanese economy right after the earthquake, they all are pessimistic, such as Japanese economy would not be recovered as strong as before any more, or Japanese yen should not be bought, but should be sold.
Nobody would be able to deny the negative effects from the earthquake, the tsunami, radio contamination from the nuclear plant accident, and the electricity shortage in the greater Tokyo area. However, the opinions, such as hyper-inflation would occur due to excessive issue of national bonds, energy of the recovery would not be strong due to Japanese population aging, or human resources escaping from Japan to foreign countries, are the science-fiction-like imaginations, rather than economic analysis.
Those who imagine would have their freedom, but they would underestimate the power of Japan, an advanced country, whose living standard and education level are high. Japan has been and still is economic power whose expertise is high-tech with many experienced and skillful expert human resources. Japanese foreign currency reserve should not be also ignored.
There are reasons to believe that the Japanese economy will recover from the damage stronger than ever and begin another period of growth. This is because:
- There is a unique cooperative relationship between the Japanese financial sector and industrial sector. One of the characteristics of the Japanese economy is that the financial sector and industrial sector have kept their cooperative relationship, established during the recovery from the first energy crisis in the 1970s. Although the stock market right after the oil crisis had dropped to be 3,355 yen on October 1974, the market recovered and marked high, 4,564 yen, on May 1975, seven months later than the steep drop. This unique system has worked to enable recovery from past difficulties as the oil crisis. It should work well for similar recovery from the current damage.
- The world economy will not survive without the Japanese economy. The world has observed and recognized that components supplied by Japan, in fields such as automotive and electronics, could not be replaced very easily. American research institute, HIS Automotive reported on March 22, that due to short supply of auto parts from Japan, the production of automobiles worldwide would drop by 35%, equivalent to five million cars. In the electronics field, there was an announcement that one-fourth of silicon wafer supply was stopped because of the earthquake. Wall Street Journal on March 11 reported that Japanese share of the semiconductor market is 20.8%, and the share of electronics components is 13.9%. Therefore, the impact of the supply shortage by the earthquake on global electronics market shall not be underestimated. Japan is also an important market for exports from countries including China, the US, and many European nations. It is, therefore, useful for other countries to support the recovery of the Japanese economy.
- The Japanese outlook is effective with regard to overcoming difficulties such as the current earthquake situation. Japan has overcome many difficult situations including oil crises, higher-yen-evaluation, and previous natural disasters like the Kobe earthquake. The Japanese people are skilled in scheduling recovery, and focusing on their individual roles, and will continue their efforts until they attain their goals. Many enterprises have already proved this point by quickly re-opening production after the earthquake. According to The Institute of Statistical Mathematics in Japan, in its regular report issued on every five years, the top image of Japanese characteristics is diligence. It has been diligence which recovered Japanese economy from various crisis in the past. There is no reason it does not work this time. It will work this time, as well.
According to news sources from Japan, Japan has started to plan more than simple recovery from the damage. Tohoku District is planning to build a new city which is strong against natural disaster. Some of them have started drawing blue print to build new concept cities. Instead of plunging the Japanese economy, even this natural disaster would trigger the new recovery and growth of the economy of Japan.
The Japanese Yen continues to be one of the major currencies on the forex market. However, the country and its economy have not been well understood by the outside world. This country has a history of recovering well from disasters. The people have inherited strength through their genes. The current situation will once again prove this to be true.