March 12, 2011 in Business

Upheaval in Japan adds to its fragility

Factories and flights shut down with peak tourism season ahead
Paul Wiseman Associated Press
 
Associated Press photo

People take naps on the floor as they stay the night at Tokyo City Hall because train and bus services were suspended after one of the largest earthquakes on record slammed Japan’s eastern coast Friday.
(Full-size photo)

The earthquake and tsunami that struck Japan on Friday forced multinational companies to close factories, fight fires and move workers, inflicting at least short-term damage on that nation’s fragile economy.

Assessing the full economic impact was impossible in the hours after the magnitude-8.9 quake. But traffic clogged streets, trains stopped, flights were grounded and phone service was disrupted or cut off. U.S. companies DuPont and Procter & Gamble said communications problems were making it hard for them to gauge the effect on their operations in Japan.

Still, the damage to Japan’s economy, the world’s third-largest, wasn’t nearly as severe as it might have been. The devastated northeastern coastal region is far less developed than the Tokyo metro area.

“Something similar hitting Tokyo Bay would have been unimaginable,” said Michael Smitka, an economist who specializes in Japan at Washington and Lee University.

The Japanese economy has been stagnant for more than a decade. It shrank at a 1.3 percent annual pace in the final three months of 2010. By contrast, the U.S. government estimates that the American economy grew at a 2.8 percent annual rate over the same period.

Toyota Motor Corp., the world’s biggest automaker, shut down two assembly plants. Parts makers were also shut down.

Nissan Motor Co. stopped production at five of its plants in northeastern Japan and in the Yokohama area near Tokyo.

Japan is just weeks away from its peak tourism season: late March and early April, when cherry trees blossom, said Alastair Donnelly, co-founder of InsideJapan Tours, a British company that sends more than 5,000 tourists from the United Kingdom, United States, Canada and Australia to Japan each year.

“I encourage people still to travel. Japan will need support from tourism,” Donnelly said.

Tourism to the beach communities of Southeast Asia dried up after the 2004 tsunami, devastating the livelihood of the survivors.

James Shuck, an insurance industry analyst for the investment bank Jefferies, estimates the insurance industry’s losses in Japan at $10 billion. That would make it the costliest Japanese earthquake for insurers ever. The liability is limited, Shuck said, because it hit outside a major urban area and because only about 10 percent of Japanese households buy earthquake insurance.

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