Power Cuts are Top Economic Concern in Japan

April 15, 2011
Japan's nuclear power plants supply some 30% of the country's electricity.

The Asian Development Bank's top economist said on April 14 that power cuts are now the greatest threat to Japan's economic recovery. After initial concerns that the March 11 earthquake and tsunami, coupled with the ensuing nuclear crisis, would wreck Japanese and global manufacturing supply chains, Changyong Rhee said the main fear had become a prolonged power cuts and brownouts.

Power cuts "can hurt not just the affected area, but the whole of Japan," Rhee said, pointing to disruptions that could hobble the economy for months to come. "Initially, we thought that power supply would be normalized by the end of April; it looks like it is going to be a bit longer than that."

Power shortages have plagued the country since the quake, which caused 11 of Japan's 55 nuclear reactors to be at least temporarily closed.

The government has already imposed electricity-saving targets to reduce consumption by up to 25%, even as it battles to contain leaks at the ailing Fukushima plant.

More than a month after a devastating 9.0-magnitude earthquake hit the country, Rhee and other economists are still trying to understand the long-term impact on the world's third largest economy and its neighbors.

The biggest question mark might now be the fate of those 11 nuclear power plants, which account for around six percent of the country's electricity production. "The worst scenario might be that they have to shut down all these affected nuclear power plants, I hope not," said Rhee, a former G20 sherpa.

Japan's nuclear power plants supply some 30% of the country's electricity.

But there is some positive news amid Japan's economic woes. According to Rhee, manufacturing disruption remains "a serious problem in the short run, but it seems to be less problematic than we initially thought."

Firms like Toyota and Honda have seen manufacturing slowed by parts shortages, but they have largely been able to shift production overseas and foreign firms have used alternate supply lines, he added.

Still, the country faces a sharp short-term reduction in growth. The International Monetary Fund on Monday lowered its 2011 growth forecast for Japan to 1.4% from 1.6%, citing "large uncertainties."

Most economists expect growth to bounce back as the country intensifies rebuilding efforts. "The impact on Japan can be serious in the short run -- one or two quarters -- but the growth rate over the medium term is less dire," said Rhee. Rebuilding is expected to cost around 25 trillion yen (US$295 billion), and Japan's central bank insists that price tag could be met.

"As long as Japan continues to work tirelessly toward rebuilding, it is unlikely that financing problems will arise," Bank of Japan Governor Masaaki Shirakawa said in a speech at the Council on Foreign Relations in New York.

Copyright Agence France-Presse, 2011

See Also
Japan Quake Setback to Global Nuclear Industry

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