This is the second in a series of short comments in which the professionals at Pacific Tax Partners discuss impact of the recent tragedy in Japan on the economy.

Japan’s Post-Quake/Tsunami Disaster Economy (#2)

As of this writing (Sunday morning, US East Coast time) mild tremors continue. Our comments are based on current news in the Japanese press:

1. Fiscal measures: A supplementary budget will be adopted in or after the start of a new fiscal year in April, after the FY 2011 budget bill is approved.


2. Short-term liquidity: The Bank of Japan will provide several trillion yen in money market operations on Monday, in the interests of market stability and anticipation of a surge in cash demand at banks. The Bank is expected to also announce on Monday it is maintaining its zero-interest policy.


3. Recovery in the business cycle: The January-March quarter has been expected to be the bottom for overall recovery and the start of an upward phase of the business cycle. Expectations have been dashed.


4. Industry: The shutdown at nuclear power plants represents a major constraint on industrial activity. Automobile assemblers and semiconductor manufacturers have announced factory closings due to physical damage to their facilities. Interruptions in supply chains mean that disaster effects will be felt all over the nation. Destruction of port facilities including harbor craft will mean interruption in import and export business. General uncertainty and malaise will tend to depress share prices, interfering with the capital market and eradicating wealth. Retailers in the stricken region also will have difficulty in continuing operations even if their stores have not been damaged; for many of those retailers their customers are now in shelters and there is no business to be done in original locations. In other words, logistics is in a chaotic stage. Marine food production is a strong industry in the affected area; supplies of squid, wakame seaweed and scallops will hit.


5. Power: From Monday Japan time TEPCO (Tokyo Electric Power) will ration supply even in the Tokyo Metropolitan Region, for at least a week, because of the problems at the Fukushima No. 1 and No. 2 nuclear plants. Although intermittent, power interruptions are currently scheduled in 9 of 23 wards in central Tokyo. Other than Shinkansen bullet trains, in the Kanto/Tokyo region regular long distance and local area train service outside of the central Tokyo has not resumed.

For more information on customized economic reports and tailored US-Japan tax advice that cuts to the chase, contact the staff economist and experienced tax professionals at Pacific Tax Partners:

Terry Wilson US Income Tax, IRS Tax Appeals Terry Wilson has 25 years expertise in international financial planning and trade issues as well as US income tax and tax appeals. He is qualified as an MBA and US CPA, Certified Financial Planner, Certified Internal Auditor, Certified Fraud Examiner, and is a Certified Computing Professional. He is a member of the American Institute of Certified Public Accountants (AICPA), the Finance Club of Brussels at the Bourse, and the Institute of Internal Auditors. He can be reached at [email protected].

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