Japan earthquake: Production halted at factories

Mark Gregory reports on the potential cost of the cost of Japan's devastating earthquake and tsunami

Production has been halted at many factories in Japan, as companies assess the damage of the earthquake and tsunami on the north-east coast.

Sony, Toyota, Nissan and Honda are among firms to have closed plants.

Economists say the earthquake and tsunami could have a "profound" impact on Japan's economy - the world's third largest - although it is too early to make any judgements.

But they say the damage is unlikely to be as bad as the 1995 Kobe earthquake.

Macqarie Economics Research said that the epicentre of the latest earthquake was well offshore, while in 1995 it was very close to the city of Kobe.

It also suggested that the area most affected by this disaster was less important economically than Kobe, which was one of Japan's most important ports.

Capital Economics said that Japan was now "much better prepared for this kind of disaster than it was in 1995".

The Kobe earthquake left more than 6,400 people dead, about 300,000 homeless, and caused damage estimated at 10 trillion yen ($100bn at the time).

'Bad timing'

The earthquake, which measured 8.9 on the Richter scale, and the 10-metre high tsunami, has shut down ports, power plants and refineries.

A major explosion hit a petrochemical plant in Sendai, while further south a huge fire swept an oil refinery in Ichihara city, Chiba prefecture.

Start Quote

The company does not know how long it will take to restart operations. It depends on the extent of the damage that has been caused. We are still awaiting an update on what kind of devastation has taken place”

End Quote Sony statement

Capital Economics said that the timing of the current disaster "could not have been much worse" for the Japanese economy, which contracted at the end of last year.

It said a large part of the rebuilding costs would have be to paid for by the government, adding to its already large debt problem.

Its government debt is now three times the size of its GDP (economic output), and twice the level it was in 1995.

But Capital Economics added that Japan was better prepared than most countries for such disasters.

It also pointed out that although economic activity usually falls following major incidents, subsequent reconstruction work had in other cases boosted demand and helped the economy to bounce bank.

It said it expected the scale to be similar to the Niigata quake in 2004, which cost $30bn.

GDP fell by 0.4% afterwards, but then rose by nearly 1% in the following six months.

David Cohen, a Singapore-based analyst at regional economic commentators Action Economics, agreed.

"In the short term, the damage could even knock off almost 1% of the country's GDP," he said.

"Longer-term though, it will balance out, through the rebuilding exercise which will be positive for growth will all the construction taking place. It could turn positive in about 12 months."

Factories closed

Production and businesses disrupted

Company Status

Sony

Production halted at six plants

Toyota Motors

Three group factories halted

Canon

No impact reported

Nippon Telegraph & Telephone

Restricted calls to some areas including Tokyo

Nissan Motors

Halted production at four plants, two injuries

Honda Motors

Halted two plants, one employee killed, about 30 injured

Panasonic

Assessing damage, several workers with minor injuries

Fuji Heavy Industries

Five plants halted

Sapporo

Damage at Sendai and Chiba plants

East Japan Railway

Halted train services in Tokyo area

NTT DoCoMo

Mobile-phone service disruptions

There will also be concerns about damage to productive capacity, Mr Cohen said, and industrial production may suffer as a consequence of the damage caused.

Electronics giant Sony has six factories - four in Miyagi and two in Fukushima - in the north-east of the country, the region which suffered the brunt of the quake.

"Production in all factories has been halted for now," said Sue Tanaka, of the firm's communications department.

"The company does not know how long it will take to restart operations. It depends on the extent of the damage that has been caused. We are still awaiting an update on what kind of devastation has taken place."

The factories mainly produce components for use in things like Blu-ray players, and all employees have been safely evacuated.

Toyota Motors said production had been halted at three plants, and also said that there had been damage to some dealerships, and that they were currently checking what the situation was with their suppliers.

Nissan has closed four factories, and said two workers had been injured, while Honda has stopped production at two plants and said that one employee had been killed and about 30 injured.

Power down

Further afield an oil refinery near Tokyo caught fire, causing a massive blaze.

And activity at the major port in the nearby city of Yokohama has been disrupted by the earthquake, suffering a loss of power at its terminal.

Map showing where earthquake struck

"At the moment they are trying to get power back but it's unlikely to happen today," said Boon Lee Lur of shipping company Neptune Orient Lines.

The city of Sendai in the north of Japan, which was the worst hit by the disaster, saw fires break out and its port overrun by the tsunami.

The cost of clearing up the damage done could run into the billions, according to HSBC Private Bank's chief Asia strategist, Arjuna Mahendaran, and that is likely to add further to the Japanese government's ballooning debts.

But rating agency Moody's was more upbeat about Japan's capacity to deal with the quake.

"In a big economy like Japan, the impact of a natural disaster can be absorbed economically by the government and private insurance, so there will be no impact on government's finances and therefore Japan's sovereign rating," it said.

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