Acclaro Blog

Archive for March, 2011

Japan: In the Face of Tragedy

Monday, March 14th, 2011

On Friday March 11, 2011, the largest earthquake on record in Japanese history struck northeastern Japan. A devastating tsunami followed with 30 foot waves swallowing entire cities across the Pacific coastline. The full scope of the damage is still unknown, though the confirmed death toll has already exceeded 1,600, and is expected to rise significantly. Several cities and villages remain completely isolated, accessible only by helicopter.

Earthquakes are not new to Japan. Its long history is marked with numerous disasters.  Still, what has surprised us is Japan’s ability to restore a sense of normalcy in a timely manner. Learning from their past experiences and failures, we are confident that Japan can put itself back on its feet. In fact, several retail chains have already restored operations in some of the hardest hit areas to provide food and daily necessities. 

We have no intention of underestimating the negative impact on Japan’s economy. In the short term, businesses in the retail, insurance and manufacturing sectors are likely to struggle. Electric power is in short supply due to the closure of most nuclear power plants on the Pacific coast, with several reactors possibly experiencing a meltdown. Electric power companies have announced plans to implement scheduled power outages across the Kanto region. Industrial production in areas affected by the power outages will likely remain low for the time being.

However, there are positives emerging from the rubble. Political feuding within the majority Democratic Party of Japan, as well as with opposition parties, which had threatened a budget impasse, has subsided. For a change, Japan is finally seeing leadership from its politicians. As was the case with the Kobe earthquake, a large stimulus bill will likely be passed for the reconstruction of infrastructure. This will create much needed domestic demand. Additionally, the Bank of Japan (BOJ) has announced it will consider every measure to provide sufficient liquidity, starting with a massive 15 trillion yen open market operation, where the BOJ will buy bonds from banks to provide them with short-term liquidity. On top of this, the BOJ doubled its risk-asset purchase program to 10 trillion yen. Japan’s financial system remains solid.

Earthquakes of this scale are difficult to foresee or model. These events remind us of the importance of maintaining a well-diversified portfolio. Over the next few weeks, we will continue to monitor the situation and adjust our strategy accordingly, taking into consideration the long-term impact of this earthquake.

Last but not least, Japan has received offers of aid from more than 90 countries around the world. Rescue teams from Korea, Singapore, China and other countries have already arrived and are heading toward the disaster area. U.S. military forces are also on the scene to assist in various capacities. On behalf of my fellow Japanese, we would like to express our deepest gratitude.