Japan's industrial belt fortuitously dodges disaster's heaviest blows

Japan's industrial belt fortuitously dodges disaster's heaviest blows

The country is a major exporter of cars & consumer electronics goods

The epicentre was in and around the coastal city of Sendai, nearly 200 miles northeast of Tokyo, nation’s population centre, and well north of Japan’s primary manufacturing region running from Nagoya to Osaka and farther south and west.

“If this had been a couple hundred miles to the south, the economic and human toll would have been almost incomprehensible,” said Marcus Noland, Senior Fellow at Peterson Institute for International Economics. “In that respect, Japan dodged an enormous bullet here.”

The disaster could not only prompt the Japanese government to pump more money into the economy, analysts say, it may also propel Japan’s already strong currency, the yen, even higher against the dollar and other global currencies, as Japanese money invested abroad returns to help in the rebuilding.

Japan is a major exporter of cars, consumer electronics goods, and parts and sophisticated industrial machinery. The ripple effects, analysts say, are likely to be some delays in shipping goods, and possibly higher prices in certain products and components. But the impact is expected to be relatively modest and short-lived.

Japan, for example, produces 40 per cent of lightweight memory chips most commonly used for storage in digital music players, smart phones and tablet computers, estimated Jim Handy, Analyst at research firm Objective Analysis. But most plants that make such chips, and other electronics components, are south and west of Tokyo.

Still, a high-tech factory does not have to topple to halt production. A strong shaking, like that generated by the magnitude-8.9 earthquake can upset the delicate machinery used in production.

Recalibrating machines, analyst say, can take a week or two, crimping supplies. However, Japan’s major automakers have long had contingency plans in place to keep supplies moving. Toyota, reported that its car assembly plants had resumed production after brief stoppage. 

But most of Toyota’s Japanese production is done south of Tokyo, around Nagoya, including Prius hybrid, which is built only in Japan. Over past two decades, Japanese automakers have shifted large portion of production of cars sold for the US to American plants, while Japanese parts suppliers have set up shop in North America as well.

Some analysts predict that yen will strengthen in the wake of this earthquake, too. Why would a disaster cause a nation’s currency to gain in value? In Japan’s case, the answer lies partly in the country’s high savings rate and sizable investments abroad. “As households see their physical assets destroyed, need funds for reconstruction and become more risk averse,” Michael Hart, Analyst for Roubini Global Economics, said “they are likely to repatriate their savings.”

In doing so, they would convert their foreign holdings back into yen, increasing the demand for the Japanese currency, thus driving up its value. Still, a strong yen could pose problems for Japanese exporters, by making their products relatively more expensive on the global market.