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Tsunami-nomics: How the Disaster Could Set the Stage for Japan's Economic Recovery

Japan, having absorbed a massive catastrophe, finds itself with major industries struggling. What's a country to do?

When a massive undersea earthquake struck off the coast of Japan in March, it shook apart cities and created a massive wave that wiped out seaside communities. In the wake of the tragedy—and resulting nuclear disaster—the world focused on emergency measures and human costs. We're just now starting to grapple with the longer-term effects of the tsunami, which are being felt around the world.

Japan, the world’s third-largest economy, is one of the few developed nations to maintain a significant manufacturing and export sector, namely cars and electronics. But the disruptions caused by the earthquakes—infrastructure damage, power outages, and work absences—have hit these industries hard.

This phenomenon has meant uncomfortable success for U.S. automakers: Their Japanese competitors saw major drops in sales, in some cases 25 to 30 percent, as they failed to bring their vehicles to market. Ford, General Motors, and Chrysler, who all emerged from the recession (and in the case of the latter firms, bailout and restructuring) leaner and more competitive, rushed to fill the gap, increasing market share in the absence of their biggest competitors.

Korean carmakers, long the overlooked younger sibling of their Japanese competitors, also posted major gains. “This whole event has pushed the Korean producers more into the public visibility,” says Barry Bosworth, an expert on the Asian economy at the Brookings Institution. “It’s not an accident that there’s a Honda and there’s a Hyundai, they produce similar cars and they’re trying to duplicate the Japanese experience in the U.S.”

Japanese consumer electronics companies like Panasonic, Sony and Toshiba have have been facing similar difficulties. Nintendo, the iconic video-game firm, cut the price of its hand-held gaming device, the 3DS, some $80 in the United States in the hopes of boosting sales going into the holiday season, angering gamers who had already bought the device.

But don’t get too excited about potential discounts on the Sony big-screen you’ve always wanted. Further price cuts from Japanese exporters aren’t that likely. With debt crises spreading across the globe, Japanese investors have been bringing their money home, driving up the value of the Yen relative to the world’s other currencies and making sales abroad a much more expensive proposition.

Japan's economy has been in a slump ever since it failed to make a pronounced recovery from a financial crisis in the early 1990s. The massive catastrophe of the tsunami, paradoxically, could be the kick that Japan needs to figure out how become more competitive in the tech manufacturing sphere, where cheaper competitors in Asia like South Korea, Taiwan and even Singapore are starting to steal the country’s advantages.

“They have to find a way to reenergize the Japanese economy,” Bosworth says. “There’s been a discussion in Japan about trying to use rebuilding after the tsunami as sort of a tool for reengineering their economy more broadly, a sort of leading edge for technological innovation.”

After two decades of malaise and an earth-shattering disaster, that may be asking a lot of Japan. But it’s not the first time the country has attempted the economically impossible: Its recovery and growth after World War II was an economic miracle that had America’s go-go eighties Reaganauts shaking their in boots.

And, after all, Japan is named for a rising, not a setting, sun.

Photo via (cc) Flickr user Mike George

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