Japan has all the shows

2011 has just begun, but has become very difficult for East Asian and Pacific regions. The unprecedented floods in Queensland, Australia, drought in northern China, southern India and Sri Lanka, a devastating earthquake in the New Zealand city of Christchurch, and now is an earthquake, tsunami and accidents at nuclear power plants in Japan. Of course, all of these events pale before the last one - the human and economic losses caused by the disaster in Japan are extremely high. 1995 vs 2011. Although the earthquake, which occurred March 11 at 130 km off the northeastern coast of Japan (8.9 on the Richter scale) and was the strongest in the history of Japan, the Land of Rising Sun for such disasters is nothing new. The obvious historical parallel current events is a devastating earthquake that struck near the city of Kobe, January 17, 1995 years.1 (also known as the earthquake Hanshin-Kobe). Then the magnitude of the earthquake was much lower (6.6 points) and there was virtually no tsunami, but its epicenter was located on the coast and much closer to populated points (from 20 km to the big city of Kobe). Of course, any comparison is lame, especially when it comes to human tragedies and hardships, but all the same event in Kobe, provide a basis for assessing the possible impact of the current disaster. Casualties during the Kobe earthquake were 6434 people (on the final assessment in 2005), which is approximately two times lower than the projected loss of life now. The disaster struck at the sixteen-year-old more economically developed regions of the country than the present disaster - North-East region of Japan is responsible for 6.8% of GDP, while the areas affected by the earthquake in Kobe, gave 12.4 % of GDP. The very one and a half Kobe was one of the major ports in Japan before the earthquake, and despite the massive recovery and did not return his former role in the economy. Economic losses from disasters in 1995 was estimated at about 10 trillion yen (over $ 100 billion at the then exchange rate), or 2.5% of GDP. The current estimate of economic losses are still very vague, but it is likely that they will be higher. Thus, a consulting company in the field of modeling catastrophe Equecat believes that losses will exceed $ 100 billion Credit Suisse economists and Barclays give a higher estimate - $ 180 billion experts Mitsubishi UFJ Securities is even more pessimistic - in their opinion, the losses may amount to 5% of GDP, or about $ 250 billion burden of reconstruction work lies primarily in the state - according to consulting firm AIR Worldwide, the total amount of insured property losses account for only $ 15-35 billion, however, is much more than during the Hanshin-Kobe, then insurance was covered by only 3% of the property. Loss of global companies reinsurers - Swiss Re, Munich Re, Hannover Re, Scor, as well as Japanese Japan Earthquake Reinsurance - have not been disclosed, but you can with a high degree of confidence to assume that profits this year, they will not see. The financial implications of the disaster in Kobe and its impact on the overall economic situation in the country, region and world at large is somewhat more complicated to calculate than direct human and economic losses. So, six months after the Kobe earthquake yield of government bonds fell from 4.7 to 2.6%, Topix stock index and the Nikkei 225 fell by about 20%, well, the yen rose against the dollar by 19%. Such dynamics can be easily explained. The disaster led to the repatriation of capital - sale of foreign assets to cover the costs associated with the restoration of damaged regions, accompanied shopping yen and, consequently, increasing its rate. Also led to the disaster flight of investors from all risky assets - the sale of shares accompanied by the purchase of more secure government bonds, with the result that their profitability has declined. In response to the appreciation of the yen, the BOJ lowered the rate in April 1995 that led to an even greater decline in yields of government bonds. However, as analysts Nomura Securities, this dynamic had other reasons - in 1994, after raising interest rates in the U.S., there was a crisis in Mexico, which caused investors to doubt the stability of the dollar - a fact that also pushed the Japanese investors to close positions in dollars. In addition, it should be remembered that by the mid-1990s, Japan was still recovering from the collapse of the speculative bubble in real estate and stocks, was formed in 1980. "In the mid-1990s, the Japanese stock market was still overvalued in relation to almost all asset classes, - says co-owner of a Hong Kong investment company GaveKal Louis-Vincent Geyv. - Earthquake only served as a catalyst sales of Japanese assets. " In fact, in the early 1990s, Japanese stocks were traded with an average P / E - 66 (sic!), they also accounted for 45% of the world index MSCI World, and dozens of the world's largest banks, seven were Japanese (where they are now and who can remember them?). The bubble began to deflate in 1990, when stock prices and real estate began to decline and the economy in the years rolled by anemic growth, but the bottom in the stock market has been achieved only in 2003, and to isolate the effect of the disaster in Kobe in this long-term system process (stocks lower government bond yields lower, the yen above) is quite difficult. And yet, it is likely that the process of repatriation of Japanese capital, and now will lead to similar results, but in a milder form - falling stock market, yen rise and decline in yield of government bonds. As for the stock market, the reaction of investors was not long in coming - on Monday, March 14, the Nikkei 225 fell by 6%, and the next day for another 10.5%. Rather, such a strong decline will be adjusted upward, but the overall bearish trend in the medium term can be maintained. The yen also strengthened and managed to show record levels against the dollar. General economic and fiscal impact crash is likely to be moderate. Thus, the fiscal burden associated with the earthquake of Kobe, was $ 64 billion over 5 years. Even if we assume that now burden the state would double, and the total amount of $ gostrat 130 billion (2.5% of GDP, or an average of 0.5% of GDP over the same five years), it is unlikely this will have any serious impact on the economy (orders for the rehabilitation of infrastructure and buildings can even give it a new impetus to the development), and fiscal stability. Long-standing problems. In general, Japan, and no accidents have serious problems with fiscal stability and the level of debt. According to OECD, national debt of Japan by the end of 2011 amount to 204% of GDP, with net liabilities, except for state assets amount to 120% of GDP (142% - according to the McKinsey Global Institute). The budget deficit in the current year is expected at 7.5% of GDP. Even at very low rates of interest payments on government bonds is already 59% of revenues - a record high figure for OECD countries. Amidst all these huge numbers earthquake effect is negligible. In fact, Japan, and without any disasters an urgent need to spruce up state finances. Sooner or later it will be done through raising taxes. At the moment, the tax burden in the country is not too high - only 33% of GDP, and raising taxes should not be particularly painful. "In Japan there are many ways to avoid a debt crisis a la Ireland, Greece, etc., - said Geyv. - One obvious option would be to increase the sales tax or the introduction of VAT (perhaps 20%). " To assess the impact of Japanese disaster on the world economy while few people decided, as the global economy, and without going through a disaster is not the best of times and, in fact, still not really got out of the crisis, which started back in 2007. Dive into a new world recession - it is an option in the coming years, but is unlikely to be the direct cause of this event in Japan, although they may play the role of "straw that broke the camel's back." Returning to Japan, once again we note that economic problems are long term and structural in nature: population decline, with increased number of retirees (the effect of aging of the population), high levels of public debt amid falling savings in the private sector (the prospect of debt and fiscal crisis), the loss of competitiveness and share of world export markets against the background of increasing competition from China (in sectors with low added value), Korean and Taiwanese (in sectors with high added value) companies. It is obvious that these calls will be most relevant to the economic future of Japan, but what the consequences of the current tragedy of the Rising Sun Country will be able to overcome. 1 However, the most destructive earthquake in the twentieth century in Japan was September 1, 1923 near Tokyo, killing more then 140 thousand people.