Japan costs 'will be more than $180 billion'

15 March 2011

The cost of recovery and reconstruction in Japan following the earthquake and tsunami that hit the country last week is likely to be in excess of $180 billion, it has been predicted.

Reuters reports that it will take three per cent of Japan's annual economic output to help restore it to a status close to its previous state, adding it will be more than 50 per cent greater than the total cost incurred following the 1995 earthquake in Kobe.

The news agency noted there are some suggestions that the amount will rise to be closer to $1 trillion over a number of years.

Despite being the world's third-largest economy, Japan already had public debt that was double its $5 trillion output - and Moody's Investors Service claimed the natural disaster could affect confidence in the nation's ability to settle its arrears.

Lead analyst at the organization Tom Byrne said: "The earthquake may have shifted such a potential tipping point a bit forward, unless Japan's political parties are galvanized by the crisis to also address the country's long-term fiscal challenges."

Reuters noted the earthquake struck the north-eastern region of Japan, which accounts for around six to eight per cent of gross domestic product.

Moreover, Brendan Brown, head of economic research at Mitsubishi UFJ Securities, said there is a tendency to underestimate the costs involved in such circumstances.

The expert noted: "There are many uncertainties - we don't know how long power outages will last and that's an ongoing cost in addition to reconstruction."

Earlier in the week, it was revealed that the Bank of Japan (BoJ) attempted to stabilise the country's financial institutions by ploughing 15 trillion yen ($183 billion) into the nation's banking system.

The BoJ also increased the amount of its Asset Purchase Programme by five trillion yen - brining this total to almost 40 trillion yen.

By Gary Cooper

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