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Friday, July 15, 2011
Japan's power-short economy
The Bank of Japan's tankan economic survey for June, released in early July, shows that the economy was in bad shape that month but expects that it will rebound in September.
But attention should be paid to factors that may hamper economic recovery, including power shortages.
Reflecting the effect of the March 11 earthquake and tsunami, and the accidents at the Fukushima No. 1 nuclear power plant, the diffusion index (DI) — the percentage of companies expecting a good prospect minus the percentage of companies expecting a bad prospect — for major manufacturers was minus 9 for June, or 15 points down from March, the first dip in 15 months.
But the DI for three months later is plus 2, pointing to better conditions.
The June DI for the auto industry was minus 52, or a fall of 75 points from March, the biggest drop since the tankan survey started in November 1992. But the DI for three months later is plus 6, showing a dramatic upturn.
While the June figures reflect the negative effects of the March 11 disasters, those for three months later show that the restoration of supply chains for parts and components is accelerating economic activities.
Capital investment planned by large enterprises in all industries for fiscal 2011 is 4.2 percent higher than the corresponding investment in fiscal 2010. Large enterprises are looking forward to an increase in demand as the reconstruction of the devastated areas makes progress.
The BOJ's report on regional economic activities shows that production and personal consumption are picking up, including the areas hit by the disasters.
However, the expansion of economic activities is partly supported by special budgetary measures taken by the central and local governments in the wake of the March 11 disasters, as well as by companies that have increased the rate of operations to mitigate emergencies. If these factors are eliminated, economic recovery may hit a snag.
The newly introduced stress tests that are to be conducted on the nation's nuclear power facilities may further decrease energy supplies.
Yet increased interest in green energy sources and power-saving efforts can offer new business opportunities for innovative enterprises. The government should create policies that will help invigorate such businesses.