We're all hearing about the tragedy in Japan, with horrific photos and video footage of the aftermath of the earthquake and 10-meter Tsunami. The humanitarian disaster, with thousands dead and tens of thousand homeless, will continue to capture the world's attention. If you can bear to look, here's some remarkable Japanese TV footage of the tsunami roaring into the Japanese coastline: Tsunami Footage
But what impact will the disaster have on the global economy and investment portfolios? Japanese stocks fell 6.2% on Monday after a 1.72% drop on Friday. While significant, this decline is actually less than the 7.5% decline that followed the 1995 Kobe earthquake. London's Guardian newspaper reported that the Bank of Japan injected 21.8 trillion yen ($266.9 billion) into the Japanese economy, as a measure to limit the financial devastation wreaked by the crisis.
The hardest-hit Japanese stock is likely to be Tokyo Electric Power Company, which has had to close power plants and is fighting core meltdowns in three nuclear facilities. Toyota, which is now the world's largest car maker, has announced that it will close 12 assembly plants across the country until at least Wednesday night, causing $72 million a day in losses.
The disaster also had a counterintuitive impact on global oil prices, crude prices actually fell 3% on Friday and slid further on Monday as analysts expected lower demand in the short-term from the world's third-largest oil consumer. Longer-term, prices could be pushed up. Japan typically receives about a third of its energy from nuclear power, but its power capacity fell by more than one-fifth as 11 reactors went off-line. Japan may be bidding against the world for oil supplies, since oil and gas are the most plausible energy replacements to its nuclear generators. Of course the additional demand comes as Libyan oil fields have come off-line.
How the disaster will affect other countries is uncertain. U.S. shares fell 1%, and European shares dropped 1.5% on Monday, but the U.S. News & World Report web site quoted several international economists who believe that the damage is unlikely to spread, and who expect the high-savings Japanese to rebuild quickly and efficiently. The Japanese do hold about 10% of U.S. government debt, so if the Japanese decide to repatriate funds to pay for a massive cleanup and rebuilding effort, it could raise government bond rates.
The U.S. News & World Report analysis further speculated that the Japanese auto industry may have to temporarily curtail shipments of the Toyota Yaris, Scion xD and xB, Honda CR-V, Accord and Fit and Acura TSX and RL. Dealer networks normally carry a 30-day supply of autos, so the shortage won't become immediately apparent; a bigger issue is whether Japanese auto makers will be able to find replacements for the parts suppliers whose factories were destroyed, and whether U.S.-made models will suffer from a shortage of parts shipped from Japan.
Sources:
Guardian articles: Article 1
Article 2
U.S. News & World Report: US News
