The 2011 Tohoku, Japan Quake and Tsunami:A Financial Impact Assessment

Exploit statistics and mathematics to set a normalized viewpoint and understand the extent of this event

Financial impact

Real economic impact

Understanding the scale of the event

Calculate the daily standard deviation of NIKKEI over the previous 2 years

Standard deviation express how much variation or "dispersion" there is from the average (σ)

An 8σ earthquake

The following week’s normalized log movements, as multiples of σ results in a -8σ

NIKKEI index collapsed by 8 times the average daily fluctiation

An 8σ earthquake

The following week’s normalized log movements, as multiples of σ results in a -8σ

NIKKEI index collapsed by 8 times the average daily fluctiation

BUT WHAT IT REALLY MEANS?

How much 8σ is?

Kobe earthquake, 1995 -5σ

How much 8σ is?

Kobe earthquake, 1995 -5σ

9/11, 2001 (DJIA) -6σ

How much 8σ is?

Kobe earthquake, 1995 -5σ

9/11, 2001 (DJIA) -6σ

Leheman default, 2008 (DJIA) -8σ

The Yen surge

In one month

1 Euro = 122 Yen 1 Euro = 114 Yen

-6,5%

The Yen surgeReasons:

Fund repatriation in preparation for reconstruction

Conseguences:Might help raw material import

But hinder export

Regional consequences:About a quarter of East Asia’s long-term debt is

denominated in Yen, that means 1/4Billion

The Yen surge

Regional consequences:

About a quarter of East Asia’s long-term debt is denominated in Yen

Real Economic Impact

• typically, the negative effects of a natural disaster are mostly concentrated in the region of the disaster

• In the case of Japan’s disaster, however, the negative impact is greater because of the combination of the earthquake and tsunami…

Real Economic Impact: infrastructures• Damages:

243,000 homes 5,686 buildingsPort facilities,Sensitive electronic equipment, 2,126 roads, 56 bridges

• The government estimates the material damage alone could top $300bn (£181bn), making it by far the world's costliest natural disaster.

Real Economic Impact: sectors

• agricultural, forestry, and fisheries sectors.

• electric components and IT equipment

• Automotive

• Japan’s principal food commodities include fish and seafood, rice, vegetables, fruits and nuts, and dairy and poultry products ->  increase imports

• Many assembly companies, such as automotive, computers and consumer electronics, have been forced to pause their operations

• Shortages of electricity and parts have damaged factories in other countries.

Real Economic Impact: consequences

Real Economic Impact: Forecast

• The government is likely to submit to parliament a €35bn extra budget to remove debris and build temporary housing.

• GDP will expand 0.8% this year, down sharply from the 1.7% growth previously forecast.

• The economy will expand GDP to 2.3% in 2012, faster than previous estimates for 1.3% growth

Real Economic Impact: Forecast

• The immediate impact of the disaster is likely to be large, extending beyond the areas devastated by the earthquake and tsunami. The experience of past disasters in Japan and other developed countries suggests that the negative short-term impact on economic output will be followed by a rebound as reconstruction spending picks up.