Economic silver lining for Japan?

Economic silver lining for Japan?

15 Mar 2011

The tragic events following the Japanese earthquake and tsunami last Friday March 11, described as the most disastrous event since World War II,  are still unfolding and the full costs of this catastrophe are yet to be assessed say Professor Sisira Jayasuriya and Dr Nobuaki Yamashita. 

Accounting However, the Japanese government is already formulating a huge reconstruction plan to be funded both from its own resources and from some form of a reconstruction tax.

‘This tax will be the mechanism for funneling funds from Japanese households to the national reconstruction effort and will minimize pressure on existing government debt levels,’ says Professor Jayasuriya from La Trobe University’s School of Economics and Finance.
Professor Jayasuriya says Japan has the second largest stock of savings in the world, and is not an indebted country, contrary to some press reports over the past few days.

 While many capital items can be easily imported most reconstruction activities, such as rebuilding of residential houses, buildings, bridges, roads and other infrastructure, require local resources.

A sudden surge of demand will not only increase employment and output in the construction related industries but also generate upward price and wage pressures. Coming after two decades of stagnant employment and deflationary prices, the resulting upward pressure on wages and prices can set the stage for a broad based recovery of the macro economy.

Dr Yamashita also a lecturer in the School of Economics and Finance at La Trobe says nothing can compensate for the loss of lives, human suffering and trauma. However, in economic terms, there is a silver lining.

‘The massive reconstruction effort that will necessarily follow will create the conditions for Japan to experience a ‘construction boom’ that will produce the long-awaited ‘demand shock’ for raising employment, spending and jolt the economy out of the deflation trap in which it has been stuck for twenty years,’ he says.

Dr Yamashita believes Japan is a country with an enormous capacity to cope with adversity, processing not only massive material resources but also an unparalleled stock of social capital.

‘Lessons have been learnt from the reconstruction experience of the much poorer Asian economies that suffered even larger shocks in the 2004 Asian tsunami.  Whatever happens over the next few days and weeks, as a Japanese national I believe Japan will certainly recover from this tragedy, stronger than before,’ says Dr Yamashita.

For more information please contact:

Lisa Prowling
Media and Communications Officer
T (03) 9479 5517
M 0401 044 784





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