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2011 Vol.3
The Japanese Economy Moving toward Reconstruction

2011/07/01

The Japanese economy was on a path to recovery at the beginning of 2011; however, the Great East Japan Earthquake, which occurred on March 11, drastically changed the situation. Immediately after the earthquake disaster, it was difficult to grasp the magnitude of the damage and its influence on the economy because of insufficient information. As time has passed, however, the scale of the damage has become clear. This paper summarizes coming trends in the post-earthquake Japanese economy from shortterm and medium-term perspectives.
There are four factors affecting short-term trends in the economy: (1) the size and timing of reconstruction demand, (2) an electricity shortage and its effects on production and consumption, (3) negative impacts of the nuclear power plant accident, and (4) broken supply chains. Concerns about the electricity shortage remain for the remainder of this year and next year, and there is no end in sight with regard to the nuclear accident. However, it seems that the Japanese economy will experience a so-called V-shaped recovery due to reconstruction demand mainly in the form of public investment and recovery of supply resulting from supply chain restoration.
There is a mountain of subsequent issues that must be examined from a medium to long-term perspective. Medium-term issues include (1) reconsideration of energy strategies, (2) ways to get involved in industrial policies in the process of reconstruction, (3) reexamination of national land planning in connection with, for example, the national disaster prevention system and a desirable reconstruction plan for the disaster-stricken areas, (4) restoration of sound government finance, and (5) changes in management strategies of private companies.
It seems that the effect of the Great East Japan Earthquake on the macroeconomy has been relatively small although the earthquake has caused significant human casualties and significant losses in capital stock in the private and public sectors. However, serious issues remain, such as the yet-to-be-resolved electricity shortage problem, improvements in disaster prevention measures, and reconsideration of energy strategies. The future course of Japan hinges on how such issues are addressed. The entire country needs to deal with this difficult time, turning the current crisis into opportunities.

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