Opportunities for Japanese economy one year after tsunami

The Japanese economy is slowly recovering from the triple blow of the March 2011 earthquake, tsunami andd subsequent nuclear disaster The catastrophe offered new opportunities, but old problems yet remain. Japan has also had to cope with seeing neighbouring China usurp its position as the world's second-largest economy behind the United States.
The magnitude-9 earthquake was the biggest recorded in Japan and one of the strongest anywhere in the world in the past century. It unleashed a tsunami that devastated much of the north-eastern region.
The disaster came as Japan was slowly recovering from the economic shock caused by the collapse of Lehman Brothers and dashed any hopes of a quick economic recovery.
The powerful flood wave destroyed production facilities and disrupted the supply lines for multinational companies such as Toyota, leading to worldwide production losses and sales problems.
Japanese consumers went into a state of shock, and cut back drastically on spending, preferring instead to save out of fear of further catastrophes in the future.
Industrial supply lines were, for the most part, restored within months, much faster than some economists had predicted.
However, supplies were hit once again by floods in neighbouring Thailand, with Japan's automotive and electronics industries worst affected. The flight of capital due to the European debt crisis has also seen a surge in the value of the yen.
Investment is on the increase and experts predict a return to economic growth, not least because Japan's economy shrank less than initially estimated in the fourth quarter of 2011 as companies ramped up capital expenditure.
"From a purely economic point of view, Japan is in a better position than other countries thanks to the reconstruction in the catastrophe areas," said Martin Schulz, a senior economist at Fujitsu Research Institute in Tokyo.
The wrangling among the political classes in Japan, and the resultant power struggle the government has had to wage against bureaucracy, meant the first supplementary budget to finance reconstruction efforts was only slowly put into place.
There have been two further supplementary budgets amounting to 4 per cent of gross domestic product, which has resulted in visible progress since the beginning of the year.
According to experts, there is even a shortage of labour in the construction industry as a result of the amount of work going on in the areas affected by the tsunami.
But all the reconstruction efforts are being financed through borrowing. Japan is already the world's most indebted industrial country with a national debt amounting to 210 per cent of GDP.
There is an ongoing debate about the reform of Japan's taxation system as well as increasing the consumer tax rate from its current five per cent, but critics continue to complain about a lack of progress.
Economists believe the anticipated upturn from the reconstruction efforts should last into next year. The situation is helped by special economic zones offering tax incentives to encourage investment.
The effect of a strong yen and the slowdown in exports, which are the motor for Japan's economic growth, are having a greater impact on the country's economy than the effects of the March 2011 disaster.
Although many Japanese companies have moved a lot of production capacity abroad, it is here where the untapped potential exists. Just 17 per cent of Japan's GDP is made up of exports compared to nearly 50 per cent for Germany.
Another factor is the slow integration of Japanese companies into neighbouring Asian growth markets. The catastrophe has given Japan new opportunities, but the existing long-term problems and a rapidly aging population remain.