Ten days after the terrible triple catastrophes of earthquake, tsunami and then the nuclear crisis at Fukushima, the Japanese Government has started talking about rebuilding.
Tokyo media reports said the government plans to dedicate up to 10 trillion yen ($US127 billion) in new lending to businesses to help them finance day-to-day operations and repair damage from the quake and tsunami.
The Nikkei newspaper reported that the government can provide special financing in the form of low-interest loans or interest payment subsidies backed by public funds when a natural disaster or other event triggers major economic instability.
The paper said the government was considering allocating between several trillion yen and up to 10 trillion yen to the scheme.
Funds needed to support the scheme would be set aside in an emergency budget that won’t be completed until early next month.
The Bank of Japan has already boosted its lending package for business in the wake of the tragedies from 5 trillion yen to 10 trillion (the same amount as what the Government is talking about).
But before then the government and Japanese industry will have to grapple with the impact of soaring yen, and the subsequent intervention last week to cut its value.
That intervention will make speculators wary about bidding up the value of the yen (thereby allowing Japanese companies to bring bank yen from offshore to pay their share of the cost of the repairs and rebuilding and not sending the currency spiking higher).
For the rest of this year, the outlook for the economy and currency will be impacted by a drop in exports and a rise in imports (especially of coal and LNG to make up for the energy shortfall from the problems at the Fukushima reactors, and two other nuclear power stations).
Sony has shut eight plants in Miyagi, Ibaraki and Fukushima prefectures, and these are undergoing safety and operational checks. Toyota has said it will keep 21 auto and components plants across Japan closed until tomorrow (March 22).
Sony and Toyota shares fell 12% in the wake of the quake up to the close of trading on Friday.
A number of ports in north eastern Honshu are closed and will remain closed for some time until repairs are made.
More than 20,000 have died or are listed as missing (but thousands more have yet to be placed on the missing list). More than 100,000 buildings in the Tohoku region of northeastern Japan, were damaged or destroyed by the quake and/or the tsunami.
All this will cost a huge amount of money which many nervous foreigners wonder if Japan can afford, or finance without driving up the value of the yen.
They can and they will get help not only from the intervention, but rising interest rates in Asia and Europe.
Rates are likely to rise in Europe, (with the ECB set to raise rates at next month’s meeting (or in May) will help make the yen look relatively less attractive to speculators. Indian rates rose late last week and will probably rise again in China in the next couple of months.
In fact there’s every chance that the yen could end the year significantly weaker than around the current 80 yen to the US.
Barclays Capital estimates reconstruction costs for the government could be ¥5 trillion to ¥7 trillion, equal to about 6% of government spending.
Total damage could be much higher, around $US200 billion (around 16 trillion yen) according to some forecasts.
Economists believe existing reserves should fund a large portion of this, so there shouldn’t be a flood of new bond issuance, although any additional stimulus programs could change that.
The Economist magazine pointed out that Japanese companies have foreign assets valued at $US2.6 trillion.
Insurance companies and reinsurers will pick up part of the cost, possibly as much as $US35 billion (around 2.8 trillion yen) and already AIG, the recovering giant still controlled by the US Government, revealed losses of $US700 billion for the March quarter. AIG is the biggest foreign insurer operating in Japan.
AIG said the property casualty insurance unit would be hit with another $US200 million in pre-tax insurance losses from other disasters, including the January New Zealand earthquake, and huge floods in Australia and Brazil.
The preliminary Chartis loss estimates from the Japan disaster excluded AIG’s general insurance operations in Japan, it said.
It said the maximum loss it could incur from those operations would be $575 million, mainly from its participation in the Japanese government’s earthquake insurance pool for private homes, which holds about $500 million in AIG reserves.
On home losses, it said, "the industry loss remains unquantified at this time."
Complicating the public relations battle in Japan was the news that abnormally high levels of radioactive materials have been found in spinach and milk at farms as far as 110 kilometres from the crippled nuclear power plant. That would put them outside the exclusion zone.
The government pleaded for calm, stressing that levels were still relatively low.
Japan is the world’s largest net importer of food and any concern over domestic agriculture is likely to worsen the trend.
Tokyo Electric Power Co, Inc., or Tepco, said it would offer compensation to farmers. The utility continued its efforts to cool the damaged reactor and a power transmission line has been connected to one reactor at the Fukushima Daiichi plant.
Barclays Capital said that total quake-related damage may reach up to 17 trillion yen instead of the previously projected 15 trillion yen.
It has downgraded 2011 Japan’s growth fore
