The early gloomsters are out and about proclaiming that Australia will suffer from any sell off of Japanese investments or from any slump in Japanese economic activity as a result of the quake, tsunami and nuclear crisis.
Many of these ‘experts’ are the same who saw collapse and debt crisis in the GFC for Australia, and have yet to get around to correcting some of their more outrageous commentaries.
They should all go and have a cold bath.
The surge in the value of the yen to a record around 76 to the US dollar saw our dollar sold off for a while before it turned late yesterday and rose.
Rather than another problem for the Australian dollar, the events of the past week have been an interesting test and it has proved to be a bit stronger than many commentators thought.
But if you had to pick an industry that will suffer, it’s the nuclear power sector in Japan (and in many other countries), uranium mining, and the Japanese tourism industry.
Compared to what they face, Australia will escape relatively unscathed.
The Japanese economy will slide into a deflationary recession as a result, the tentative improvement of the past few quarters ended.
And while recovery will come, shaking free of the deflationary forces will again be tough.
Early estimates of the damage bill range from $US100 billion to $US200 billion and could very well see negative economic growth for much of this year before a recovery towards the end, extending into 2012 and 2013.
But remember this is in an economy where GDP is approaching $US6 trillion.
Whatever it is, it’s going to be huge, but Japan can afford it and will afford it, despite what some of our gloomsters might be saying.
Yes the Government does have a big debt, at 210% of GDP, or close of $12 billion.
But little of that is owed overseas and Japanese investors regard Government debt as one of their major investments.
Besides the Japanese corporate sector has so much cash they could quite easily buy that debt with change left over. And Japan has foreign reserves of just over $US1 trillion.
The big question is the impact of the Fukushima nuclear crisis and the damage it does to physical assets, sentiment and the clean up costs.
What is important to realise that once all the problems have been faced and the situation stabilised, rebuilding can start and Australia has lots of materials that can help.
More importantly we have lots of LNG and coal (and yes, uranium, but that won’t be in strong demand for some while) that Japan will need for energy production while it sorts out its nuclear sector.
Already spot thermal coal and LNG prices have risen by between 10 and 20% according to some reports (while spot uranium prices are down by more than 20% this week).
And finally, the earthquake was so large and so different that many of the companies which model catastrophes for insurers, governments and big investors had never thought to examine its possibility.
For all the damage and agony it caused, it was a truly unique type of quake and when you read some of the early commentaries from the modelling companies, the huge tsunami that followed makes sense, indeed now seems inevitable.
And for all those alarmists claiming that it’s global climate change at work, or a harbinger (along with the second Christchurch quake) of more doom and gloom to come, it’s nothing of the sort.
RMS is a Californian risk modeller, in one of its updates this week it said.
The hazard posed by the subduction zone along the Pacific coast of Honshu has been poorly constrained.
The last major subduction zone earthquake along the Pacific coast to the east of Tokyo was in 1677.
Although this earthquake caused a major tsunami, the shaking from the earthquake inland was not very strong.
In 1896 and 1933, there were major earthquakes in the northern part of the subduction zone (off NE Japan) that generated very large tsunamis.
However, there has remained a seismic gap of about 500-600 km – the northern two-thirds of which appears now to have ruptured.
There still could be a potential for another major earthquake to occur along the adjacent southern section of the subduction zone, located to the east of Tokyo and Chiba.
Global Earthquakes
Given the occurrence of several large, damaging earthquakes around the globe over the past year, a common question has been, “Are these events correlated somehow?” RMS’ answer at this time is “Not in any clearly identified way.”
These comments exclude the connection between the two major events in New Zealand, as the February 2011 earthquake clearly is linked to September 2010.
With respect to the large, damaging events of the past year (Chile, New Zealand, and Japan, among others), RMS does not represent that they signal a change in global earthquake activity or are definitively linked, as the statistics of large earthquakes are such that apparent “clusters” can occur as part of a random process.
The energy release associated with the New Zealand earthquakes is vastly less than either the Chile or Japan events (on the order of 1/500th of the seismic moment).
Modeling of earthquakes generally indicates the static stress changes drop to negligible levels within two lengths of the fault rupture plane, so even the Chile earthquake has a limited footprint on the global scale.
It must be acknowledged that there are nume
