Three Unexpected Occurrences Following the Great Tohoku Earthquake

Risaburo Nezu, Senior Executive Fellow

January 12, 2012 (Thursday)

Seven months have passed since the Great Tohoku Earthquake. While the earthquake and tsunamis were terrible, the world was moved to see Japanese people helping each other and enduring. Normally when such a great disaster occurs, looting and destructive behavior run rampant and safety plummets even in developed countries, but such things were almost non-existent in Japan. Conversely, the explosion at the nuclear power plant, which involved bungling by the government and TEPCO, not only dispersed radiation into the atmosphere and sea water and threw the region into turmoil, but it destroyed the precious, intangible asset of Japan’s reputation as a “safe and secure country,” which it spent many years building. Repairing this reputation will take many decades. However, several unexpected silver linings were discovered during the rebuilding and recovery process.

1. Quick Recovery of Supply Chains

Industry was deeply affected by the disaster, but as a result we saw that the supply chains which support Japan’s manufacturing industry stretch far beyond her shores, and when Japanese factories stop so do American and Chinese ones. It became clear that Japan’s materials and parts provide high performance and quality and cannot easily be copied by other companies, thus showing the world that Japanese companies’ competitive power is as healthy as ever. What was unexpected was how quickly those supply chains recovered. According to a survey in April by METI, supply chains were expected to recover at a pace of 90% by the end of July and 100% by year’s end. As time progressed, however, recovery accelerated, and by the end of August even automotive, which has a long supply chain, had returned to pre-disaster production levels. Industry should now try to recoup the time lost in the first half of the year and further increase production. There was concern that companies whose production facilities had been destroyed would lose clients to South Korean and Chinese companies, but fortunately there have been no examples of this.

2. Highest Exchange Rate in History

Another unexpected surprise was the movement of exchange rates. After such a great disaster one would expect a country’s currency to depreciate. Japan also had a legion of unfavorable conditions arrayed against it such as monstrous debt and an ageing society. It would have been perfectly reasonable for the yen to plummet, but in fact the very opposite happened: appreciation accelerated. The Japanese government in cooperation with other countries attempted a yen-depreciation intervention in the exchange market, but its effects disappeared after a few days, and even now the yen remains at its highest level of appreciation ever.

The reason for this is that since this spring the economies of western developed countries have atrophied even worse that Japan’s. In the US, employment and the housing market continue to worsen, and due to its national debt rating being lowered by a rating company in August, stocks have fallen even farther. In Europe, Greece’s national debt problems of three years ago, far from dying down, show signs of spreading to Spain, Italy, and even France, and investors have begun selling their euros. Both the US and Europe were unable to keep control of enormous government debt and their currencies became unstable.

Underlying this instability are not only economic problems, but also lack of leadership from presidents and prime ministers, and, as in Japan, the two houses of parliament being controlled by different parties has prevented decisive and bold action. Western countries are starting to resemble Japan; hence the term “Japanification” being bandied about in recent economic magazines. Thus, investors have lost faith in the dollar and euro and are beginning to move toward the yen for the time being.

This is why the yen has appreciated despite the Great Tohoku Earthquake. The investors of the world feel more secure with the yen no matter how vibrant China and South Korea are. This feat may have been made possible by “National Character.” While it may be painful for exporters, it is certainly no bad thing for a country’s currency, which is a symbol of its strength, to be highly valued.

3. Highly Effective Energy-Saving

The third and final unexpected outcome of the Great Tohoku Earthquake was the effectiveness of energy-saving. The stoppages of nuclear reactors in Fukushima and Onagawa made it clear that there would be power shortages over the summer, and a 15% power usage limitation was put into effect for the regions under the control of TEPCO and Tohoku Electric Power Company. This limitation, which ended on September 9, in fact realized energy-savings of almost 20% and within TEPCO’s region there was only one day in which the facility operation rate exceeded 90%. This experience has clearly shown us that in the past there has been much wasteful power consumption for lighting and air conditioning. Of course, unreasonable energy-saving methods such as shifting weekend holidays need not be continued, but even though the power limitation has been lifted, the effects of energy-saving will remain for a long time. Hypothetically, if the entire country were able to save half the above amount of energy, i.e., 10%, that alone would account for approximately 20 nuclear reactors’ worth of power. This is excellent news for Japan, which is predicted to suffer power shortages over the long term.

The Great Tohoku Earthquake was a disaster of unprecedented scale, but as a result many things occurred which taught us Japan’s strength and resilience. Whether these can be turned into Japan’s long-term national power depends on the efforts of its people.