Japan's 2011 Earthquake, Tsunami and Nuclear Disaster

Economic Impact on Japan and the Rest of the World

woman sitting on ground after fukushima earthquake
••• (Photo by Kiyoshi Ota/Getty Images)

On March 11, 2011, a 9.0 magnitude earthquake and 100-foot high tsunami pummeled Japan's northeastern shoreline. At least 28,000 people died or went missing. Over 465,000 were displaced. Many people in the area were elderly. Rescue efforts were difficult due to cold weather and disrupted transportation routes. 

To make things worse, the waves damaged the Fukushima nuclear power plant, creating radioactive leaks. At first, engineers couldn't stop the leakage. Even after they did, it took months to completely halt emissions. Radiation showed up in local milk and vegetables. It also briefly appeared in Tokyo's drinking water. Radioactive materials continued to leak into the Pacific Ocean, raising levels to 4,000 times the legal limit. 

Japan classified the Fukushima breach a Level Seven on the International Nuclear Event Scale. This means it was "a major release of radiation, with widespread health and environmental effects," according to the International Atomic Energy Agency.

That put it at the same level as the Chernobyl nuclear disaster. But the nuclear fallout was only one-tenth as bad as in Russia. There, a raging fire spewed radioactive particles into the jet stream for days. It contaminated the surrounding countryside and even made its way to Europe

Impact on Japan's Economy

The "Triple Disaster" devastated Japan's economy in four ways. First, it destroyed 138,000 buildings and cost $360 billion in economic damage. That’s more than the $250 billion cost estimate for Hurricane Katrina. The quake hit northeast Japan. This region was responsible for 6-8 percent of the country's total production. That made it worse than the 1995 Great Hanshin earthquake near Kobe, which cost over 6,000 lives and $100 billion. There, rebuilding took seven years.

Second, it crippled Japan's nuclear industry. Eleven of Japan's 50 nuclear reactors were immediately closed after the disaster. That reduced the country's electricity generation by 40 percent. Intense public outcry over nuclear generation caused 22 more to shut down by May 2011. Plants continued to be closed for testing and review. By May 2012, there were none in operation.

As a result, Japan had to import oil to replace generation capacity. This caused record trade deficits. Two plants were restarted in April 2013. They ran until September 2013, when they were closed for maintenance. 

Prime Minister Shinzo Abe supports safely reopening the plants. Energy imports from the Gulf region cost too much for this indebted nation. They also created too much geopolitical risk. Abe reassured nervous residents that Japan's nuclear safety standards were the toughest in the world. 

Despite being the only country to suffer a nuclear weapon attack, Japan decided to rely on nuclear power after the 1973 oil embargo. By the time of the disaster, nuclear power safely supplied a third of the country's electricity. 

Third, the Bank of Japan provided market liquidity to ensure the stability of financial markets. But the long-term impact was harmful to the country's struggling economy. Rebuilding lifted the economy a bit. But it was outweighed by the increase in the national debt. Even before the disaster, it was already double Japan's annual economic output. 

Fourth, Japan's economy had just started to recover from 20 years of deflation and recession. It seemed to be on the mend by 2010, when gross domestic product increased by 3 percent. The earthquake only added to the country's economic challenges. In addition to massive government debt, Japan faced rising commodity prices and an aging labor pool.

Many wondered if Japan would sell U.S. Treasurys to pay for rebuilding. It did this several months after the Hanshin earthquake, according to Nancy Vanden Houten, analyst at Stone & McCarthy Research. This would have lowered the value of the dollar, increasing the cost of imports to the United States. But Japan didn't need to sell Treasurys. It was able to finance the rebuilding program from its people's savings. 

How It Slowed Global Growth

The quake and tsunami damaged and closed down key ports. Some airports shut briefly. This disrupted the global supply chain of semiconductor equipment and materials. Japan manufactures 20 percent of the world's semiconductor products. That includes the NAND flash, an indispensable electronic part of Apple's iPad. Japan also supplies the wings, landing gears and other major parts of Boeing's 787 Dreamliner.

Automakers Toyota, Nissan, Honda, Mitsubishi and Suzuki temporarily suspended production. Nissan considered moving a production line to the United States. A total of 22 plants in the area, including Sony, were shut. (Sources: "Breach in Reactor," Associated Press, March 25, 2011. "Considerable Economic Impact from Japan's Quake," ABC News, March 12, 2011. "Experts Divided on Quake's Economic Impact," iStock Analyst, March 13, 2011.)