Today I attended a press conference at the Foreign Correspondents Club of Japan on the impact of the earthquake and tsunami on Japan. Three expert panelists addressed the topic: Kathy Matsui, co-head of Economics, Commodities and Strategy Research in Asia for Goldman Sachs, Kyohei Morita, Chief Economist of Barclay’s Capital Limited Japan, and none other than “Mr. Yen” himself, Professor Eisuke Sakakibara, formerly Vice-Minister of Finance for International Affairs, Ministry of Finance.
True to form, Sakakibara accurately had forecast the appreciation of the yen immediately following the March 11 shock, reflecting repatriation of funds to Japan. He now foresees gradual weakening from the current level of 83.84 ¥/$ spot to 85 rather quickly, and to 90/91 over the next several months.
Morita focused on macroeconomic impacts of the earthquake and tsunami, which he said are difficult to grasp because they go beyond the immediate property damage and lifeline disruptions, including planned blackouts (described as not so well-planned, and therefore unsettling, as manufacturers cannot adjust production schedules to shifting targets). After the 1995 Hanshin-Awaji earthquake, production turned up quickly but this time the downward pressure on production could be more prolonged, he reported. Morita forecast an uptick in Japan’s GDP of 0.8% for the FY 2011. Sakakibara was more optimistic in general, foreseeing 1% growth in 2011. The views of all three panelists are not inconsistent with the view of the World Bank, which predicted GDP to pick up in the 2nd half of 2011 reflecting reconstruction efforts.
Matsui believes, as do I, that as horrific is the tragedy of March 11, there is a silver lining in the dark cloud of the earthquake. Challenge and opportunity are two sides of the same coin. The people of Japan are united in their resolve to reconstruct Japan. She said that this is the time to look forward, not backward, seizing the moment to enact needed reforms in tax and immigration policy and to promote her favorite theme —“womenomics” —making better use of underutilized (if not unutilized) female resources to counter looming worker shortages in Japan.
She also believes that a positive impact of the quake will be to stimulate Japan out of its deflationary trap, the bête noire of the economy in the aftermath of the “bubble” collapse. Pressures in this direction were already being felt in the commodity inflation evident in much of Asia.
And Matsui believes that the government should embark on an aggressive PR campaign to boost consumer sentiment and quell some of the sensationalist hype in the press about the crisis, particularly regarding the “radiation shock.” She commented that the radiation level in Tokyo is lower than in Hong Kong and is just slightly higher than in London and New York at this time, as reported by Bloomberg: http://bloom.bg/dMtAaj.
With his inimitable dry wit, “Mr. Yen” took exception to the government’s urging of Japanese people to exercise self-restraint. As a metaphor, he suggested that Japanese should be encouraged to have more (ohanami) parties. A classic Keynesian economist, he believes that the government should pass a 20 trillion yen supplemental budget, which he believes is manageable, as Japan’s public debt to GDP, while high, is mostly owed to Japanese households and not to foreign governments. Given the enormity of the crisis, all panelists favored a supplemental “reconstruction” budget of several trillion yen.
Professor Sakakibara emphasized that a key in Japan’s reconstruction and recovery is leadership, in particular focusing his comments on politics. He felt the government could and should do a much better job of utilizing the technical skills of ministry bureaucrats. He was optimistic that with Japan’s perseverant national characteristic and experience in reacting to “shocks” that the long-term impact of the quake will be positive.
Leadership is always the key. And that is where you come in. Everyone, no matter at what level or in what capacity, can pitch in and demonstrate the collaborative leadership needed to harvest benefit for Japan and manage this crisis. Without a doubt.
All the best,
Warren J. Devalier
©2011 Warren J. Devalier