DEVASTATING JOLT IN JAPAN : Major Rebuilding Effort Could Aid Economic Growth, Analysts Say


The killer earthquake that hit western Japan on Tuesday caused immense damage likely to run into tens of billions of dollars, but the reconstruction effort should give a boost to economic growth, analysts said.

“These sorts of things bring out the worst in economists, because a disaster is good for economic growth as long as someone is willing to pay for rebuilding,” said Jesper Koll, head of economic and markets research for J.P. Morgan Securities Asia Ltd. “The Ministry of Finance and the politicians have made it clear they’ll provide all possible help, and the Bank of Japan will keep interest rates low.”

Houses, roads and bridges will need to be rebuilt, he noted, “and that adds jobs, that adds income.”

Preliminary estimates of damage caused by the quake, which was centered near the port city of Kobe, ranged from $10 billion to $50 billion. Losses from the earthquake that hit Los Angeles a year ago were more than $20 billion.


In addition to widespread physical destruction from the initial 20-second temblor and subsequent fires that burned late into the night, there will be some lost production in coming days and weeks. More than 11,500 buildings were seriously damaged or destroyed, and normal life in Kobe largely came to a halt Tuesday. The Osaka stock exchange shut down for the day, and at least 450 bank offices were closed.

Attention in Japan was mainly focused on the loss of lives, as the death toll rose to more than 2,000.

Yoshihiro Sakamoto, a vice minister at the Ministry of International Trade and Industry, told a Tuesday evening news conference that economic damage from the earthquake had not yet been quantified, but the destruction is much worse than first reported.

“There is partial destruction of port functions and road facilities, and I expect that such destruction will have a major economic impact,” Sakamoto said.


But he said it is still too soon to say whether the earthquake will increase or depress economic output in 1995.

“In a week’s time perhaps we would be able to identify the degree of damage better, and we may be able to quantify a little bit better the current situation,” he said. “But the restoration of infrastructure and destroyed buildings should be carried out immediately, and depending on the speed of the rehabilitation of these facilities, the impact on our economic activities may be different.”

Finance Minister Masayoshi Takemura said his ministry will do its utmost to extend emergency aid, but he did not specify figures.

Ryutaro Hashimoto, minister of International Trade and Industry, warned that many firms “will be forced to suspend operations, as the cutting of railway lines and roads has brought to a halt the transport of manufactured goods and material.”


“It is essential that the region’s economy not be dragged down so as to avoid pulling the legs out from under Japan’s economic recovery,” Hashimoto said, calling specifically for the government to provide sufficient aid for small businesses.

An analyst for a foreign securities firm in Tokyo, who spoke on condition of anonymity, said that, judging from initial reports, destruction from the earthquake could run as high as $50 billion.

“To judge the effect on GDP (gross domestic product) we need to know the amount destroyed,” he said. “That gives an idea of how much people may want to rebuild. . . . I don’t want to downplay the extent of the damage and obviously the suffering, but it’s amazing how fast things can sometimes recover.”

If losses from the earthquake reach $50 billion, an equivalent amount of reconstruction will likely take place in coming years, this analyst said.


If $10 billion per year is spent on the recovery effort for the next five years, that would add about 0.2% to Japan’s annual rate of economic growth during this period, he said.

The benchmark Nikkei index of the Tokyo stock exchange initially dropped more than 240 points on news of the quake but later rebounded to close at 19,241.32, down 89.85 points, or 0.46%, for the day. As of this afternoon, the Nikkei was down 21.11 points to 19,220.21. Insurance and railway stocks declined, while construction, glass and cement stocks rose.

The dollar strengthened slightly from 98.60 yen Tuesday morning to 99.26 Tuesday afternoon, but was back to 98.95 early this afternoon.