Japan Economy to Grow Despite March 11 Disasters

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Researched by Industrial Info Resources East Asia (Kofu-shi, Japan)--Japan's government is expected to spend about $120 billion on reconstruction efforts following one of the most expensive natural disasters in history. March 11's magnitude 9.0 earthquake and subsequent tsunami are estimated to have caused $310 billion in damages. Japan has already invested nearly $50 billion in debris removal and temporary housing and is expected to inject substantial funds, in the form of bonds, into an organization to be established next month that will manage Tokyo Electric Power Company Incorporated (TYO:9501) (TEPCO) (Tokyo) in compensating those affected by the Fukushima Daiichi nuclear crisis. The next reconstruction bill is set to be announced in August.

Overall, economic growth over this fiscal year is expected to be hindered, but not completely stopped. Japan may be able to avoid slipping backward, despite the disaster. Some sectors may benefit greatly, while others will not. Manufacturing has been heavily impacted, but core machinery orders rose unexpectedly in March, when they were originally forecasted to drop. The demand for heavy machinery from companies such as Komatsu Limited (TYO:6301) (Tokyo) and Hitachi Construction Machinery Company Limited (TYO:6305) (Tokyo) indicated that many companies were planning facility reconstruction by the end of March.

Komatsu, Japan's largest and the world's second-largest construction machinery company, was able to resume operations two weeks after events on March 11. Excavators are expected to be in high demand in the next few years; however, Komatsu is uneasy with the prospect of electricity shortages during the summer months, and might ramp up production in India as well as construct a new factory in western Japan. The company has a sizable parts inventory overseas and was able to overcome parts delays, and foresees a rise in sales if supply chains are not disrupted in the future. This should not happen as long as affected plants restart on schedule. Core machinery orders are expected to continue on the upward trend, especially when the details of the next reconstruction bill are made public.

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