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Japanese Chief Cabinet Secretary Yukio Edano on Tuesday maintained that the country's economic capabilities are still intact, despite that a triple blow of disasters including the latest nuclear crisis in Fukushima Prefecture seem to escalate.
"The earthquake and tsunami severely damaged the Japanese economy, but our economic power and technical capabilities have not been shaken at all,'" Edano told reporters earlier on Tuesday.
But while the government has been trying ardently to placate global concern about the level of impact that Friday's record quake, tsunami and now nuclear calamity will have on Japan and the wider global economy, leading economists are painting a very different picture.
If the past two day's activities on the country's stock market are indicative of what's to come, the government may be wiser to shoot straighter dice rather than sugar-coat the economic impact, economists said.
A broad-range of panic-selling, spurred by news radiation was leaking from the stricken nuclear plant in Fukushima Prefecture, sent the 225-issue Nikkei Stock Average plunging 1,015.34 points to close at 8,605.15 on Tuesday.
This was the first time the index has ended more than 1,000 points lower since October 16, 2008, when the Lehman shock pummeled global markets and Tuesday's close marked the third worst one-day plunge in the Nikkei's history.
Tuesday's nose-dive follows a 6.18 percent drop logged Monday and the index has fallen nearly 17 percent in just two days.
Yet, Economic and Fiscal Policy Minister Kaoru Yosano remained composed about the drop, simply saying that the government itself could go into the markets to help pick up the slack.
"It is a little bit early to mention, but we should remember that there is such a measure," Yosano said to the press on Tuesday.
"Should the equity market keep tumbling, Japan's central bank may increase its purchases of risk assets under its asset-buying program," said Norio Miyagawa, senior economist at Mizuho Securities Research and Consulting Co. in Tokyo.
"But if stocks continue to drop more and the yen gains further, it will probably have an adverse effect on corporate sentiment and household consumption. So the BOJ may need to take further action, " Miyagawa said.
With industrial production already severely hampered, supply chains disrupted and a Japanese public nervous about possible radiation poisoning, the vision for Japan's immediate recovery is unclear.
And it is uncertainty that is the very worst thing Japan's economy faces right now and the Bank of Japan (BOJ) has done little to ease fears.
Japanese government debt is already the highest in the industrialized world, at 200 percent of GDP, and far from just bolstering markets temporarily, as Yosano suggested, a clear and feasible directive needs to be drafted before Japan can start to claw it's way back to economic stability.
The BOJ said it will inject another of 20 trillion yen (246 billion U.S. dollars) into markets to ensure there is enough liquidity for consumers and commercial and institutional lending.
Up to 8 trillion yen was pumped in Tuesday and the outstanding 12 trillion yen will be provided on Wednesday and Thursday against certain collateral, the BOJ said.
The bank on Monday offered an unprecedented 21.8 trillion yen, which included the immediate pumping of 15 trillion yen into the market, marking the largest amount for a one-day operation in the central bank's history.
However analysists said the move is not bold enough.
"The BOJ is missing the chance of doing something more aggressive," said Masaaki Kanno, chief Japan economist at JPMorgan Chase & Co. in Tokyo.
"What the BOJ should do now is to anchor investors' sentiment with accelerated purchases in its program," he said.
Needless to say the BOJ's efforts are necessary, but of course temporary.
Economists are looking at the bigger picture, such as the reconstructing costs following the quake and tsunamis, which will likely amount to billions of dollars.
Government officials said it was too early to say how large a spending package would be for rebuilding and restoration initiatives. And Noda said policy makers would be unable to compile the bill by the end of the month.
But by comparison, lawmakers drafted a 2.7 trillion yen (33 billion U.S. dollars) extra budget in May 1995 after the Kobe earthquake.
Prime Minister Naoto Kan must now bargain with opposition parties in order to secure the passage of a number of key bills aimed at kickstarting the nation's sluggish economy, the recovery of which has been utterly crippled by Friday's record megaquake.
Main opposition Liberal Democratic Party (LDP) leader Sadakazu Tanigaki said the government could secure around 5 trillion yen to help finance reconstruction efforts if Kan discards some of the ruling Democratic Party of Japan's (DPJ) central policies.
LDP lawmakers also suggested that the main opposition party may become more cooperative in passing a key bill that is needed to implement the 92.41 trillion yen fiscal 2011 budget. But the condition, however, is that the DPJ give up on some of its 2009 election pledges such as policies including a toll-free expressways and a compensation program for farmers.
Naoto Kan, in this time of economic, political and social turmoil, will almost certainly have to bow to opposition party pressure to secure critical funds for the enormous reconstruction effort.
He also needs to ensure that key bills, which that are necessary to enact the fiscal 2011 budget, pass the opposition- controlled upper house as the nation looks to rebuild itself and attract domestic and global benefactors back to its core markets.
(Source:http://news.xinhuanet.com)
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