Hi Petra. This is the chief concern to the Japanese Government. The Kobe quake of 1995 placed a great hardship on the economy in that area. Even today they haven’t recovered the money that was lost due to the quake.

They fear that another Kanto Plains quake could bankrupt the country most particularly because of the financial district in Tokyo, and the ports of Yokohama and Yokosuka.

Current estimates of the repair costs in this earthquake have been reported in the range of U.S.$95 billion to U.S.$147 billion, many times the damage inflicted by the 1994 Northridge Earthquake. These figures do not include the loss to building contents such as equipment and inventory, which will also be substantial.

Some of the cost of repair and reconstruction was financed through a variety of government programs. The national government is considering setting up an emergency budget of ¥900 billion (U.S.$10 billion) to deal with the impact of the earthquake, especially to repair roads, water and sewer systems, harbor facilities, and schools.

Taking into account earthquake-related reductions in corporate and personal income taxes, the Finance Ministry is anticipating a drop of ¥500 billion to ¥600 billion (U.S.$6 billion to U.S.$7 billion) in tax revenues for the fiscal year.

In addition to the cost of repairing physical damage, the regional economy is also being severely affected by temporary business interruption and the loss of import/export capabilities. After the earthquake, all economic activity in Kobe virtually halted due to earthquake damage to buildings and contents, loss of water and other utilities, difficulties in obtaining supplies, and employee absenteeism. One-third of the prefectural economy is engaged in manufacturing. The region shaken by the earthquake accounts for almost one-fifth of the Japanese economy.

The transportation and utilities sectors were also severely affected by this disaster. With systems restoration time frames typically on the order of several months, revenue losses during the interim were significant. For example, Hanshin Electric Railway has estimated that in addition to ¥79 billion (U.S.$895 million) in damage to its rail facilities, it will also lose ¥4.5 billion (U.S.$51 million) in revenue. Osaka Gas, Japan’s second-largest gas utility, estimates that in addition to ¥15 billion (U.S.$170 million) in pipe repairs, it may lose ¥6 billion (U.S.$68 million) in revenues because of the disruption.

During the first week after the earthquake, virtually no retail or service establishments were open for business. In addition to building and inventory damage, as well as employee absenteeism, these businesses were critically affected by the disruption of lifeline services. For the most part, those businesses that were able to open did not depend heavily upon water or natural gas, which were widely unavailable; for example, some gas stations, electronic repair stores, shoe stores, and convenience stores operating out of the storefront were in business.

Indirect business disruption was also felt by producers that had little damage to their own facilities but had difficulties in obtaining supplies and other input to production or in selling products. For example, one week after the earthquake, water for industrial consumption was still unavailable to 190 companies. The pearl industry in the region, which includes more than half of Japan’s pearl processors, was shut down because the auction of the pearls couldn’t be done.

Just-in-time production methods employed by large manufacturing firms appear to be vulnerable to the widespread transportation disruption. Four auto manufacturers and a motorcycle manufacturer reported production cutbacks and partial or temporary shutdown of operations in plants outside the shaken region (as far away as Tokyo) because parts could not be obtained from or transported through the affected area. Japan’s largest automobile manufacturer cut back production by 20,000 cars and closed plants throughout Japan for several shifts because of the difficulties in obtaining supplies.

The list goes on. If the quake of Kobe did this much damage to the economy what would a quake of the same magnitude do to the economy if it struck in the area of Tokyo? How wide spread what the loss be felt? It could have an indirect affect on the economy along the West Coast, as money would be pulled from here to cover the losses in Japan. Take Care…Don in creepy town