Japan’s Torment, An Economy On the Brink

japan-earthquake-mar-12-2011-600In my other life I muse about grain prices and all things agricultural.  There are always a myriad of market factors which drive the price of any particular commodity.  However, its always those sucker punches from behind, which nobody expects that invariably rock the market.  So last Thursday as I stared at an early morning TV, I could see what that was going to be.  Japan as all the world knows by now, was rocked by an earthquake, magnitude 8.9 followed by devastating Tsunami waves.

Markets reacted accordingly on Friday taking risk off the table.  Stocks and commodities were down as the world’s third largest economy teetered to gets its bearings.  Japan is not Haiti, it’s a huge industrialized nation with purchasing power that has a profound affect on world trade.  With nuclear reactors exploding and scenes of horrific destruction, world capital flows were looking for a way out.

Obviously there are many things I don’t understand about this.  Living in stable southwestern Ontario means no big earthquakes.  Last June 23rd, we had a bit of an earthquake in Eastern Canada centred near Ottawa, but damage was minimal and most people didn’t even realize it.  I was actually typing on my computer at the time and pictures frames started shaking.  To me it was an obvious earthquake, but just as I told everybody to get out, it was over.  The Japan quake was certainly in a different league.

The economy as of now in Japan is frozen in time and to some extent on high alert because of the problems with their nuclear reactors.  For instance Japan had negative economic growth last year, but were expecting positive results this year.  Auto production has stopped in Japan, with Toyota, Nissan and Honda expecting to see their profits to shrink.  The electronics industry has also curtailed with Sony suspending production in eight different plants according to one BBC report.

The same BBC report says estimates of insurance payouts at this early stage range from $14.6 billion to $34.6 billion, a huge amount.  In effect, this could be looked at as a huge stimulus, which maybe will jump start the Japanese economy back into a much better place.  Over the last few years they have had trouble with deflation, a huge savings rate and low economic growth rates.  Now with a catastrophic disaster, there is not much choice other than to spend money and stimulate growth.  However, putting a silver lining on this disaster is a bit of a stretch.

The question is, what is radioactive caesium, uranium and plutonium?  I dunno either.  However, when it comes to radioactive material escaping from the damaged nuclear plants in Japan, its all bad.  After the Chernobyl disater in 1986, there were quite a few instances of birth defects and some thyroid cancer.  Needless to say, I don’t want to go there.  A westerner like me commenting on radiation on the Japanese is just a little bit too close.  Our Japanese friends have a history and radiation is a sorry part of that.

Of course this is a very human tragedy.  Estimates are fickle but one estimate I saw was 10000 dead.  One human life is precious, but sometimes natural disasters can be so cruel and this surely is one of them.  We had New Zealand just a month ago, now Japan and who knows where on the Pacific ring of fire next.  Vancouver BC has always stood out as a target.  Dunno if Canadians are ready for that.

Of course the economic effect of the earthquake and the Tsunami will continue to reverberate throughout the North American economy.  If you have held stocks or commodities over the last few days, you’ve lost money.  Japan is the number 1 importer of US corn which will sway the corn market.  It is also a huge agricultural importer of pork and beef, along with a lot of Canadian soybeans from southwestern Ontario.  You never want one of your best customers on their knees.  Getting Japan back on its feet will only help people here.

Of couse it could get real messy.  When there is smoke rising from nuclear plants not once, but twice, like those at Fukushima, it isn’t good.  Yes, nuclear fuel is the cleanest, cheapest, safest, until something comes along like this.  Talk of nuclear meltdown is the stuff of science fiction.

I for one, don’t want to go there.  The destruction in Japan over the last few days has been horrific and heart wretching.  Looking on the bright side is hard, but we must.  We need recovery.  We need are Japanese friends back on road to safety and prosperity.