What Long-Term Effects Can We Expect From the Japan Earthquake?

Our thoughts and prayers are with the people of Japan as they continue dealing with the earthquake and tsunami after effects.

The  Tōhoku earthquake and tsunami caused significant destruction in Northern Japan while the on-going nuclear crisis threatens wide environmental contamination. Because the news situation is fluid, we’ve restricted our comments to longer-term observations and how it may affect the global economy.

1. U.S. Treasury yields increase

Because of the 2008 financial crisis, treasury yields are historically low. With Japan being pushed in to the global debt market to refinance rebuilding, upward pressure on treasury yields will increase.

2. Reduced Reactor Electricity

Nearly 12% of Japan’s electrical capacity is offline. Worse is that 6-9% is not expected to return once the nuclear crisis is over. It will take years to restore capacity to pre-quake levels. Electricity availability will directly affect manufacturing capacity.

3. Diminished Manufacturing capacity

Japan is a tier 1  manufacturer of automobiles, semi-conductors and electronics which can’t be quickly replaced elsewhere. This supply interruption will certainly affect Japanese companies along with  global firms.

Japan will overcome the challenges it faces and emerge from this crisis. Its central bank has pumped 700 billion dollars worth of liquidity into the market over the past week to head off any concern over financial stability. The resilience and work ethic of the Japanese people will bolster their nation as they begin the rebuilding process.

Keep a steady hand on the till and don’t let today’s market fear drive your investing behavior.
Visit Direct Relief If you would like to make a donation to Japan.

Sources: Reuters, Bloomberg, Google Fiance, Fidelity, TD Ameritrade.

Note: For educational purposes only. Please consult your financial advisor for your particular circumstances.


About the author

Eric J. McClain, CFP®


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