Japan quake: the extent of aftershocks?

Just as the double-hit combo of an earthquake followed by a tsunami hit Japan last week, the destruction began - in Japan, and in asset prices worldwide. The selling reaction on commodities and equity prices was further fuelled by the nuclear fallout.
Given the uncertainty of the situation, especially as regards the extent of the nuclear meltdown, its too early to say which way the global economy would move. Views expressed by numerous global experts are somewhat divided, with most of them choosing to wait and watch before making any substantial opinions.
Still, here is the gist of what appears to be a consensus view so far.
Although, "the Miyagi quake does not look like it will be as severe to the Japanese economy as the Kobe quake was," according to RGE Global Economics, knowing that the Kobe earthquake resulted in $100 billion of damage and required years of rebuilding, the impact of the strongest ever quake to have occurred in the region might be close.
With ports shut down and industries - including auto, steel, and consumer electronics - halting production, partly due to power shortages, the prices of these commodities are seen rising up. One local steel importer says his firm expects global steel prices to rise by about 10 percent.
For importers of Japanese products, there is another reason why prices might go up: a strong yen. A strong currency can help keep import costs down and therefore keep the rebuilding costs low, however, at the same time, it can make exports more expensive for buyers aboard and thereby be a deterrent to economic recovery.
"One of the more visible near-term financial effects of the Kobe quake was a 20 percent rise in the yen against the USD over the subsequent quarter," noted CIBC, a leading North American financial institution - pointing to the repatriation of funds to Japan by insurance companies to pay claims. "Some other firms and individuals may also sell foreign assets to fund reconstruction in Japan, putting upward pressure on the yen," CIBC added.
However, the economists expect the effect on growth to be limited, both in Japan and worldwide. And the reason is reconstruction. Since the GDP calculation only takes the net increase into effect, Japans GDP is expected to rebound after 2 to 3 quarters. Experts such as David Weinstein, an economist at the Columbia University, who specialises in the Japanese economy, reminds of the post-Kobe recovery when Japanese industrial production bounced back sharply as reconstruction efforts began in the months after the quake in 1995.
Global commodities as well as equities have tumbled sharply since the quake and are seen further weakening in the days ahead. Billions of dollars have been wiped off from stock markets worldwide, including Pakistan where fears of regional sell off lopped some 216 points from the KSE-100 yesterday.
In other commodities, palm oil prices have eased, so has the price of rice. Even crude oil futures, which are otherwise stoked by the Libyan conflict, have been tapering off. Had the Kobe experience been the only guiding factor, one could expect that prices will be restated to their pre-quake levels as growth picks up on the back of reconstruction.
But unlike in 1995, with the Japanese policy rate already near zero, there is little room to jumpstart the economy. Plus, the fact that Japans government debt is about 200 percent of its GDP, the billion dollar question is: will Japan be able to borrow more for rebuilding efforts.
That question alone, and the debate over the dilemma, is likely to keep markets and market men feeling the aftershocks for quite some time.