Economic Impact of Earthquake

The impact of consecutive earthquakes in Kumamoto on Japanese economy is growing to the unignorable level. Major carmakers partly stopped its operation, because of damaged supply chain for car parts. Stock market showed its weakness with possibility of long-term negative effect of the natural disaster. The earthquake revealed fundamental vulnerability of Japanese economy.

At the beginning of this week, stock prices in Tokyo market fell across the board on Monday. Not only affected by disagreement on increasing crude oil delivery by major oil-exporting countries, Nikkei Average declined by ¥572 from last weekend, marking ¥16,275, with concern on negative impacts of Kumamoto earthquake on activities of manufacturers. Although Nikkei showed some resilience this month, moving up closer to ¥17,000, the earthquake cooled down the mind of investors.

Toyota Motors Co. announced on Sunday that it would stop the operation in some factories in Japan, because it could not secure supply of car parts. Main factories in Aichi and minor ones in Iwate, Miyagi, Tokyo, Shizuoka, Mie, Gifu and Kyoto would eventually be stopped this week. That was because a factory of Aisin Seiki in Kumamoto city, which produced doors and engines, could not run and it had no perspective of resumption. Because Aisin Seiki had been supplied its car parts to other makers, a factory for light cars of Mitsubishi in Kurashiki city, Okayama, also had to stop the line.

Kumamoto has a number of factories for precision machinery, because it is rich in pure water that is crucial for the products. Renesas Electronics has a factory of semiconductor for cars in Kawajiri, Kumaoto. The operation there was temporary stopped after the earthquake, and its effort to resume has been disturbed by consecutive aftershocks.

Toyota predicts that its impact will rise up to 50,000 cars of decrease in production. An economist calculated that 50,000 of Toyota could be paralleled with 7% of all monthly car products of all makers and decrease industrial production index by 1%. As shown in Eastern Japan Great Earthquake, assembly line of carmakers can be stopped immediately, when supply chain of its parts was broken. In addition, Toyota has a policy that it will not have unnecessary stock of its own products.

Worrying about negative impact on politics, the lawmakers in Liberal Democratic Party is putting pressure not to raise consumption tax rate planned next year. The earthquake may cause acceleration of vicious circle of Japanese economy.