Last week, there is Earthquake in The world's third large economy - Japan. Earthquake not only caused serious injury or death, family breaks, it also brings a serious hit to the Japan economy and the stock market.
It occur global market volatility in the short term. It increases global economic instability. And based on the problems caused by nuclear power plant that result of stimulates the price of oil rising and raise energy prices problems.
It occur global market volatility in the short term. It increases global economic instability. And based on the problems caused by nuclear power plant that result of stimulates the price of oil rising and raise energy prices problems.
Share price in some best known multinational companies and country banks such as Sony, Toyota dropped sharply.
“Sony fell 9.1%, Nissan dropped 9.5%, Toyota was 7% lower, the banking group Mizuho was 10.5% down. Pretty much all automotive manufacturing has been suspended. Sony has closed six component plants.” (Peston, 2011)
This loss the confidence of investors because fear of the uncertainty market. As the result, they sell their share that affects the price of Japanese government bonds fell.
This loss the confidence of investors because fear of the uncertainty market. As the result, they sell their share that affects the price of Japanese government bonds fell.
Earthquake also forces the Japan insurance industry to sell overseas assets to pay a huge amount of claims. The government must provide financial support to the regions which affected by earthquake. Also, it would inject a huge amount of fund to rescue the market. Reconstruction cost plus insurance payments may carry a huge loss for government and consequence as raise taxes or expand the Government deficit.
The bank of Japan keeps its cost at the lowest price and maintains its integrity. It is because the banking system is the most important of the economic infrastructure.
Bank of Japan announced that its economy will inject £165bn of the funds to repair economy. (Business concern, 2011) It is almost five times of funds compare with Lehman brother collapse in 2008.
On 16 March, The bank of Japan injects £27bn to shore up the financial markets.
The injection comes after the central bank announced a cash input of 23tn yen ($284bn) on Monday and Tuesday. (BBC, 2011)
It is the evidence shows that the government invests substantial capital to the banking sector is trying to enhances investor confidence and maintain the liquidity in Japanese market that prevent the banking crises.
However, the earthquake would certainly exacerbate hit in Japan economy. It is because the government’s financing cost would rise and the government have to reconstruction Japan finance that increase the risk of default.
Also, the Japanese government’s credit rating has recently been downgraded (AA-), Moody’s (Credit rating agency) point out that disaster bring out the potential of financial crisis. It means that investors fear about the ability of Japan to repay its debts. It shows that Japanese government is now considered as risky.
In my opinion, the reconstruction process should not bring out by Japan only; the global has to unite in to handle this sudden disaster. It is because country’s economy is inter-related. Otherwise, domino effect would not appear in 2008 of financial tsunami.
I totally agree with what Peter Westaway of Nomura had said as show below:
“He expects the rating agencies - Moody's, Fitch and S&P - to "cut Japan some slack" for "humanitarian reasons". Or to put it another way, as and when the Japanese government deficit grows because of the costs of reconstruction, they will not downgrade Japan's credit rating - unless (I suppose) it became clear that the Japanese government had abandoned all hope and intention of restoring the health of the public finances. Or to put it another way again, the credit rating agencies would not wish to be seen to be triggering a fiscal crisis, as the aftershock of a national tragedy.” (Peston, 2011)
Credit rating agency may downgrade Japan’s credit rating if only focus on investment grade, but they didn’t do that. I think it is because of “humanitarian reasons”. They don’t want to create another panic after Earthquake anymore.
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Do you think that the problem of inflation euro-zone is facing is related to catastrophe in Japan?
ReplyDeleteAs Japan is third large economy country in the world, if Earthquake brings a hit Japan economy and stock market, it would also brings the problem of inflation in other countries due to country’s economy is interrelated.
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