Japan's 2011 Earthquake and Tsunami: Economic Effects and Implications for the United States

The March 11, 2011, earthquake and tsunami that occurred in Japan followed by the nuclear crisis are having a large negative impact on the economy of Japan but a lesser effect on world trade and financial markets. Japan has lost considerable physical and human capital. Physical damage has been estimated to be from $250 billion to as much as $309 billion. (Greece's GDP is $330 billion). In excess of 28,000 persons in Japan are killed or missing, and more than 196,000 homes and other buildings have been totally or partially damaged. The negative effects of the earthquake and tsunami are being compounded by the continuing crisis at the Fukushima nuclear reactors and the evacuations, radioactive contamination, shortages of electricity, continuing aftershocks, and the extensive damage to infrastructure, homes, manufacturing plants, and other buildings. The earthquake-related events in Japan are still unfolding; and each round of economic assessments seems more and more pessimistic. Analysts expect that over the next quarter or so, Japan's economy will contract and may fall into recession, but it may begin to expand later in the year because of rebuilding activity. Much depends on whether the damage from the nuclear plant can be contained, the speed at which electrical and oil refining capacity can be restored, and how quickly Japan's industrial base can recover. As the third largest economy in the world, Japan's GDP at $5.5 trillion accounts for 8.7% of global GDP. The net impact of the disaster on global GDP is that it is expected to shave about a half percentage point off global economic growth with about half of that effect confined to Japan, itself. Congressional interest on the economic side centers on humanitarian concerns, radioactive fallout reaching the United States, the impact on U.S. citizens and American companies in Japan, the effects on trade and supply chain disruptions, and increased volatility in Japanese and U.S. financial markets, interest rates, and the yen-dollar exchange rate. The impact on U.S. imports from and exports to Japan is expected to be modest as a proportion of overall trade, but particular sectors or companies may be affected considerably.

Source: Congressional Research Service

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