How Japan could emerge stronger from this disaster

Provided the natural disasters do not turn into nuclear disasters, then the crisis does offer the Japanese authorities an opportunity, albeit for the worst possible reasons, to boost and reform their economy.

First, the reconstruction efforts will boost spending and output and help to break the economic stagnation that has dogged Japan for two decades. Simply restoring the national stock of productive assets will raise gross domestic product (GDP). The destruction will force the hands of families that have hitherto preferred to save their cash in the post office rather than buy a house or a car because they were worried about the future – a classic case of deflationary psychology.

Again, for admittedly the most grim of reasons, the economic impact of this disaster could end up more benign than many might now dare to imagine.

There are plenty of precedents, too – not least in Japan herself after the Second World War and the 1995 Kobe earthquake. In the gruesome calculus of these things, the 2 to 3 per cent loss of GDP now could easily be outweighed by higher future growth.

Second, seasoned observers of the Japanese scene suggest that the crisis will enable the government to actually reduce the country's in-built structural government budget deficit even as the relief programme is being launched.

The credit ratings agency Moody's has said that Japan's economy could absorb the impact of the shock, but warned that it might reach a "tipping point" if the financial markets demand a risk premium on its government debt. That would push up the cost of Japan's borrowing, at a difficult time.

Thus, the argument runs, the amount that Japan spends on, for example, subsiding inefficient farmers and supporting an often bloated state bureaucracy will have to be reduced to pay for reconstruction. An overall emergency package could tackle the worst excesses of the Japanese public sector.

Katsuya Okada, the secretary-general of the ruling Democratic Party of Japan has already indicated that the government would like to do just that; the opposition Liberal Democratic Party has also said it wants to cut government spending.

Japan's deficit is as big, proportionately, as Britain's at 10 per cent of national income. Her national debt, at 200 per cent of GDP, is about four times as large as the UK's. Thus far it has easily been funded by hard-saving Japanese workers and their pension funds, but in the longer term this is unsustainable. Hence the need to couple reconstruction with fixing Japan's wobbly public finances.

Lastly, Japan's crisis may stay the hand of central banks around the world, including the European Central Bank and the Bank of England from raising interest rates in the near future, and thus help protect a tentative global recovery. Added to the continuing turmoil in the Middle East, policymakers may well not wish to add to the lethal mix of uncertainty swirling round the world. They would be wise to wait for calm to return.

Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: E-commerce Partnerships Manager

£50000 - £100000 per annum: Recruitment Genius: This is a newly-created partne...

Recruitment Genius: Senior Project Co-Ordinator - FF&E

£35000 per annum: Recruitment Genius: A Senior FF&E Project Co-ordinator is re...

Recruitment Genius: Part Time Carer / Support Worker plus Bank Support

£10 per hour: Recruitment Genius: A delightful, 11 year old boy who lives in t...

Recruitment Genius: Office Furniture Installer / Driver

£20000 - £22000 per annum: Recruitment Genius: An Office Furniture Installer /...

Day In a Page

No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat
Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

Saudi airstrikes are fuelling the Gulf's fire

Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

The only direction Zayn could go

We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

Spells like teen spirit

A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

If fashion is a cycle, this young man knows just how to ride it

British designer Jonathan Anderson is putting his stamp on venerable house Loewe
Number plates scheme could provide a licence to offend in the land of the free

Licence to offend in the land of the free

Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

From farm to fork in Cornwall

One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

Robert Parker interview

The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
Don't believe the stereotype - or should you?

Don't believe the stereotype - or should you?

We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor