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
A local resident rests as she evacuates an area after a 9.0 magnitude strong earthquake struck on March 11 off the coast of north-eastern Japan, on March 14, 2011 in Sendai, Japan. (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, while 465,000 were displaced. Many of the people in the area were elderly, and cold weather and disrupted transportation routes made rescue efforts difficult. 

To make things worse, the waves damaged the Fukushima nuclear power plant, creating radioactive leaks.

Initially, engineers couldn't arrest the leakage, and even after they did, it took months to completely stop emissions. Radiation showed up in local milk and vegetables, and briefly appeared in Tokyo's drinking water. It 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 (INES). This means it was "a major release of radiation, with widespread health and environmental effects," according to the International Atomic Energy Agency (IAEA).

Although that puts it at the same level as the Chernobyl nuclear disaster, 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, contaminated the surrounding countryside and even made its way to Europe. For more, see Chernobyl Economic Impact.

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. This is more than the $250 billion cost estimate for Hurricane Katrina. The quake hit Japan's north-east section, responsible for 6-8% of the country's total production.

That makes 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, Japan's nuclear industry was crippled. Eleven of Japan's 50 nuclear reactors were immediately closed after the disaster, reducing the country's electricity generation by 40%. Public outcry over nuclear generation was intense, so that 22 more were shut down by May. Plants continued to be closed for testing and review, so that by May 2012 there were none in operation. As a result, Japan had to import oil to replace generation capacity, causing record trade deficits.  Two plants were restarted in April 2013, but only ran until September 2013, when they were closed for maintenance. (Source:  "Japan Shuts Last Nuclear Reactor For Now," CNN, September 16, 2013; "Nuclear Power in Japan," World Nuclear Association, July 23, 2015)

In August 2015, two plants were reopened as part of Prime Minister Shinzo Abe's new focus on reliance on nuclear energy.

Energy imports from the Gulf region costs too much for this indebted nation, and creates too much geopolitical risk. Abe reassured nervous residents that the government'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 heavily 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. (Source: "Japan Restarts Nuclear Reactor, Bloomberg, August 11, 2015; Carl Weinberg, High Frequency Economics; Brookings Institute, Triple-Disaster's Impact on Japan, March 11, 2013)

Third, 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 GDP increased by 3%. The earthquake only added to Japan's economic challenges of massive government debt, rising commodity prices and an aging labor pool.

Fourth, 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,  already twice as big as Japan's annual economic output. 

Many wondered if Japan would sell U.S. Treasuries (it's the second largest holder) 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 U.S. However, Japan didn't need to because it was able to finance the rebuilding program from its people's savings. 

How It Slowed Global Growth

The quake and tsunami damaged or closed down key ports, and some airports shut briefly. This disrupted the global supply chain of semiconductor equipment and materials. Japan manufactures 20% of the world's semiconductor products, including 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 may move one production line to the U.S. A total of 22 plants, including Sony, were shut in the area. (Source:AP, "Breach in Reactor," March 25, 2011; ABC News, "Considerable Economic Impact from Japan's Quake," March 12, 2011; iStock Analyst, "Experts Divided on Quake's Economic Impact," March 13, 2011)  

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