The devastating earthquake and tsunami that hit Japan last week is tragic.  It is  shoking and sad to see the pictures reported in the news everyday.  The Japanese people have a long way to recover from losing loved ones and rebuilding their homes and lives.  And  now, the news of radiation leaks only add to the horror and worry.

I can’t help but feeling strange to be writing about the economical impact of these events after such tragedy but it is my job to report on events which may affect your money. 

Anthony, Terry and I have read a number of opinions and have been briefed by several analysts and managers. Here is a summary of several opinions on the situation:

 Chuk Wong, BBA, MSc, CGA, CFA Manager of Dynamic Global Value funds

  • “First and foremost, investors with exposure to Japan should avoid knee-jerk reactions. History suggests that financial markets tend to revert to prevailing cyclical and structural trends much sooner than expected.” The Nikkei index lost 11% in one day on Monday to rebound by 5% the next.  It is best to avoid making moves during periods of high volatility. 
  • “Any direct impact on the global economy and Japan neighbouring countries including China and South Korea should be limited.”
  • “Damage to nuclear power pants will likely delay expansion of that energy resource.  Liquid gas is   on line to take up the slack.”
  • “Efforts by the Japanese government to rebuild…will likely cause the country’s structural fiscal deficit to deteriorate in the mid-term.”
  • “Japan is supplier to approximately 40% of the globe’s electronic components.  The disaster will likely cause hiccups in the supply chain. Taiwan and South Korea stand to benefit.”
  • Chuk’s fund is currently underweighted in Japan because of the country’s less attractive fundamentals. He intends to keep it this way for now.

 By The Canadian Press – Monday March 14, 2011

  • analysts say the devastating earthquake and tsunami that hit Japan will likely have little impact on the global and Canadian economies. 
  • Despite the inter-connectedness of the global economy, analysts believe that most of the short-term economic impact will be confined to Japan. 
  • And longer-term, the perversity of economics suggests both global and Japanese gross domestic product will likely get a boost from the massive rebuilding effort that will be required.  That means Canadian exporters of copper, oil, lumber and other materials may benefit from Japan’s reconstruction.
  • The real danger, say economists, is that the Japanese disaster, on top of the debt crisis in Europe and turmoil in the Middle East will be the last straw that snaps global confidence.  But they say that danger appears slim at the moment.

 TD Economics

  •  Japan’s earthquake and tsunami is an enormous human tragedy.  However, the economic impact is more limited.
  • The disaster has led TD to cut Japan’s economic forecast for 2011 from 1.9% to 1.4%. 
  • However, rebuilding will add to economic growth, lifting the real GDP forecast for 2012 to 1.6% to 2.0%.
  • The fiscal cost of rebuilding will not create a sovereign debt problem for Japan.
  • he near-term weakness in Japan will have limited impact on the world economy or the economies of Canada and the United States.

Stay tuned as we will be bringing you updates via blog posts as the event develops.  Please make sure to read my week next blog post on how to financially  prepare for natural disaster.

In the meantime, please do make a tax deductible donation, if you can, to organizations who provide help and assistance to those who lost everything and need our help in Japan.