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Japan earthquake
Comparisons with Kobe
Event
The Tohoku region has been hit by a major earthquake and tidal wave.
Damage seems likely to be less than the Kobe quake on 17 January 1995.
Impact
The magnitude of the earthquake is reported at 8.8, but it was well offshore,
compared to 6.8 in Kobe (Hanshin), which was very close to the city. Around
6,400 people died in the Kobe earthquake and early reports suggest that the
damage is far less in Tohoku.
Japan improved its disaster response systems in reaction to poor
performance in the aftermath of the Kobe earthquake, and disruption from the
2004 Chuetsu earthquake was limited. The BOJ has systems in place to
provide liquidity if necessary.
Miyagi (home to Sendai and the most affected by the quake) accounts for
1.7% of the population and the same proportion of GDP. Tohoku as a whole is
abut 8.0% of GDP. Initial reports suggest that Tokyo has not been badly
damaged (Kanto accounts for nearly 40% of GDP). By contrast, Kobe made
up almost 4.0% of GDP and the importance of its port and its geographic
position between Osaka and Western Japan meant that the disruption was
significant.
There are two basic economics-related concerns. The first is that the fragile
economic cycle is not in a position to withstand significant disruption. The
second is that the combination of a softer economy and the additional strain
on public finances will put upward pressure on bond yields.
Analysis
Despite the scale of the disaster, it is hard to find much evidence in the
macroeconomic data of the effects of the Kobe earthquake. Industrial
production dipped 2.6% MoM in January 1995 and then bounced 2.2% in
February and a further 1.0% in March. Costs were put at about ¥10tr. GDP
growth was 3.4% QoQ annualised in 1Q95.
The equity market fell 8% in the week following the Kobe quake. The currency
did not move significantly at the time, although it rose in subsequent months
to a peak of just past ¥80/US$ in mid-April, but this did not seem to be related
to the Kobe earthquake (there was significant trade tension with the US at the
time). The BOJ cut rates in April in response to the strong currency, not the
earthquake. Significant yen repatriation that could push the currency higher
and, at an extreme, disrupt global markets, looks unlikely.
Similarly, bond yields did not move much in the immediate aftermath of the
Kobe quake (although public finances were not in bad shape at the time), but
yields fell in subsequent months as the stronger yen helped to reduce growth
expectations and the economy headed into deflation.
Inevitably there will be microeconomic disruptions, as there were after Kobe
and even Chuetsu. However, many firms reportedly diversified supply chains
in the wake of Kobe, so the impact should be lower.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Japan earthquake
Comparisons with Kobe
Event
The Tohoku region has been hit by a major earthquake and tidal wave.
Damage seems likely to be less than the Kobe quake on 17 January 1995.
Impact
The magnitude of the earthquake is reported at 8.8, but it was well offshore,
compared to 6.8 in Kobe (Hanshin), which was very close to the city. Around
6,400 people died in the Kobe earthquake and early reports suggest that the
damage is far less in Tohoku.
Japan improved its disaster response systems in reaction to poor
performance in the aftermath of the Kobe earthquake, and disruption from the
2004 Chuetsu earthquake was limited. The BOJ has systems in place to
provide liquidity if necessary.
Miyagi (home to Sendai and the most affected by the quake) accounts for
1.7% of the population and the same proportion of GDP. Tohoku as a whole is
abut 8.0% of GDP. Initial reports suggest that Tokyo has not been badly
damaged (Kanto accounts for nearly 40% of GDP). By contrast, Kobe made
up almost 4.0% of GDP and the importance of its port and its geographic
position between Osaka and Western Japan meant that the disruption was
significant.
There are two basic economics-related concerns. The first is that the fragile
economic cycle is not in a position to withstand significant disruption. The
second is that the combination of a softer economy and the additional strain
on public finances will put upward pressure on bond yields.
Analysis
Despite the scale of the disaster, it is hard to find much evidence in the
macroeconomic data of the effects of the Kobe earthquake. Industrial
production dipped 2.6% MoM in January 1995 and then bounced 2.2% in
February and a further 1.0% in March. Costs were put at about ¥10tr. GDP
growth was 3.4% QoQ annualised in 1Q95.
The equity market fell 8% in the week following the Kobe quake. The currency
did not move significantly at the time, although it rose in subsequent months
to a peak of just past ¥80/US$ in mid-April, but this did not seem to be related
to the Kobe earthquake (there was significant trade tension with the US at the
time). The BOJ cut rates in April in response to the strong currency, not the
earthquake. Significant yen repatriation that could push the currency higher
and, at an extreme, disrupt global markets, looks unlikely.
Similarly, bond yields did not move much in the immediate aftermath of the
Kobe quake (although public finances were not in bad shape at the time), but
yields fell in subsequent months as the stronger yen helped to reduce growth
expectations and the economy headed into deflation.
Inevitably there will be microeconomic disruptions, as there were after Kobe
and even Chuetsu. However, many firms reportedly diversified supply chains
in the wake of Kobe, so the impact should be lower.
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