SINGAPORE and KYOTO, Japan, March 16, 2011 /PRNewswire/ -- Japan's devastating 11 March earthquake and tsunami have hit its struggling economy and ineffective government at what was an already uncertain time for the country.

The earthquake, measuring up to 9.0 on the Richter scale, and subsequent tsunami have devastated a wide area of northeast Japan, killing more than 10,000 people and washing away whole communities and infrastructure. The biggest quake in Japan's recorded history has brought powerful aftershocks and tsunami warnings, preventing authorities from approaching most of the affected areas to assess the extent of the damage.

"It is surely a devastating disaster, but this may create a dire need for a rehabilitation programme like the New Deal. We will need to map out economic plans to make a start for the new era," Japanese premier Naoto Kan said on 13 March. But Kan's government has already fallen short of market expectations, despite his ambitious attempt at comparisons with US president Franklin Roosevelt's economic policy to combat the Great Depression of the 1930s.

Japanese share market values have plummeted by more than 10pc since the disaster, largely ignoring the central bank's monetary easing and the government's signal of supplementary spending that will exceed the budget of 3 trillion yen ($160bn) earmarked for recovery from the 1995 Kobe earthquake — the country's previous worst disaster.

Japan made a quick rebound from the Kobe disaster, which caused 10 trillion yen in economic losses for the greater Hanshin area surrounding Osaka and Kobe — a key manufacturing hub. But such a sharp revival may not prove so easy this time for the world's third biggest economy, which has more than 900 trillion yen of public debt, equal to twice the nation's GDP.

Before this month's earthquake, the Japanese economy was slowly emerging from the recession triggered by the 2007-08 global banking crisis. The country had already experienced the so-called "lost decades" since 1990, after its asset bubble burst and severely stifled economic growth. But last week's disaster has hit manufacturing industry north of Tokyo, one of the major sectors expected to drive recovery in the struggling economy as a result of higher exports.

The return of manufacturing industries could be delayed by the impact of rolling power blackouts being implemented to cope with possible power shortages, depending on how long it takes to bring replacement electricity capacity on line.

The unprecedented nuclear crisis at the Fukushima-Daiichi nuclear power plant north of Tokyo, one of Japan's oldest nuclear facilities in operation, is adding to the economic uncertainty. Damage to the nuclear power sector, both to its infrastructure and reputation, is likely to force Tokyo to completely revise its future energy policy.

The world's worst nuclear accident since the 1986 Chernobyl disaster in the former Soviet Union follows Tokyo's decision to allow operator Tokyo Electric Power (Tepco) to extend the life of the Fukushima-Daiichi No 1 reactor, commissioned in 1971, beyond the conventional 40-year operating period.

Japanese utilities such as Tepco had stepped up lobbying for such reactors to be allowed to stay operational for as long as 60 years, as persistent public opposition slowed progress in developing new nuclear power capacity. The government now faces a more serious backlash against the idea of promoting nuclear power as a way to combat global warming, forcing it to rethink its energy policy and its future energy mix.

The seismic and nuclear disasters may help heal cracks in Japan's social cohesion, providing Kan with a final opportunity to override differences that have deadlocked political progress in Japan. He will attempt to save the crippled economy and extend the life of his government.

The ruling Democratic Party (DPJ) will try to rework the unpopular 92.4 trillion yen budget plan for the 2011-12 fiscal year in an attempt to secure reconstruction funds, a move backed by opposition political leaders. But any failure in riding out the crisis is likely to mean a quick exit for the DPJ government, whose popularity has fallen to an all-time low since it took power in the August 2009 landslide election victory.

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Argus has set up a web page with free news alerts about the impact of the Japanese earthquake on energy markets at www.argusmedia.com/japan.

Argus experts are available for comment on the impact of the Japanese earthquake on energy markets. Contact:

• Jason Feer, Head of Argus Asia, Singapore - tel +65 6496 9966 or email jason.feer@argusmedia.com
• Ian Bourne, Editor in Chief, London - tel +44 20 7780 4200 or email ian.bourne@argusmedia.com
• Tom Reed, Editor - Argus Asia Gas & Power, Argus China Petroleum, London - tel +44 20 7780 4200 or email tom.reed@argusmedia.com

For further information about Argus contact Seana Lanigan in London at +44 20 7780 4200 and email seana.lanigan@argusmedia.com or Zhilin Yuan in Singapore at +65 6496 9966 and email zhilin.yuan@argusmedia.com.

SOURCE Argus Media