How Does The Tsunami In Japan Compare With Past Disasters? 

In the last couple months a lot of the worlds focus has been on the cataclysmic earthquake, tsunami and subsequent radioactive fallout in Japan and the tragic unrest in the Middle East and North Africa. While both here at home and abroad economists are struggling to predict the tumultuous effects on financial systems and the future path of business, currencies and investments. Even though it’s not an exact comparison there are many similarities between current events and those occurring during and after World War 2. Perhaps if we look at how economies reacted to similar events in the past we can determine where the future will lead.

First there are undeniable environmental and political similarities between now and the circumstances that existed more than 60 years ago. The massive tsunami that struck Japan on March 11th caused a massive loss of human life and also destroyed much of the countries infrastructure including damaging coolant pumps and causing explosions at various nuclear power plants. The damage to the power plants has contaminated surrounding water systems and nearby food sources with radiation 100,000 times above normal levels. Compared to the prolonged attacks and the atomic bombs dropped on Hiroshima and Nagasaki ending WWII, the total loss of human life may be far less than with the latest disaster. However the infrastructure of the country still has sustained significant damage. With roads, ports, power systems, water systems and other structures and services important to a nation’s overall health and survival.

After World War II, Japan made what turned out to be a wise decision to not rebuild their damage infrastructure, but instead completely replace it with the latest technology, building materials and advanced designs. Many will argue that the decision is partially responsible for making Japan a leader in technology today. One hinderance that Japan faces today is their lack of a military which the country was barred from maintaining due to the terms of their surrender after World War II. Which can be an essential component for both search and rescue operations and rebuilding infrastructure after a large natural disaster. Americans saw this with the Army Core of Engineers rebuilding levees after hurricane Katrina and cleaning up oil after the BP spill in the Gulf of Mexico.

How Did Japan’s Economy and Population React After World War II?

Immediately following Japan’s surrender in World War 2, Allied powers began a seven year occupation of the country. The occupation officially ended in 1952, while treaties prevented Japan from maintaining a military, the Japanese Defense Force was created in 1954. This helped to fuel rumors the US was using the occupation to push an anti-communism agenda. During these years the damage to transportation networks and factories made food very scarce and difficult to distribute to those who needed it. Rice production had fallen 27% and the fishing industry was down more than 40%. Government food rations allotted just 1050 calories a day per person.

However the occupying forces were somewhat responsible for what is widely considered one of the most miraculous economic recoveries in history. One advantage Japan enjoyed was that they were not required to pay any war reparations. In addition, in an effort to stabilize the Japanese economy the United States injected around 2 billion dollars into rebuilding and reorganization efforts. By today’s standards, allowing for inflation that would be in excess of 17 billion dollars.

The United States government, under the oversight of the Supreme Commander of the Allied Powers (SCAP), instituted many changes in the governing system of the country. Including establishing a democratic system, an educational system similar to the US, and prevention of militarism. Without the ability to build and maintain a military, less than 1% of the total GNP was now devoted to self-defense and what would have gone to the armed services instead went primarily to the industrial sector.

Partly by reason of government reforms and cash infusions Japan enjoyed one of the biggest economic recoveries and most prosperous decades in the history of any country. By 1952 wages had returned to prewar levels and were continuing to increase. From 1953 to 1960 Japan’s overall economy grew an average of 9.3%. Because of the increased investment in industry and technology and with a highly skilled, well educated labor force Japan was able to increase productivity 7.2% annually from 1953 to 1962.

The investments in industry also helped to increase steel production from 5 million tons in 1950 to 82 million tons by 1969. By 1956, Japan was the largest shipbuilder in the world and by 1970 over 50% of all ships were manufactured in Japan. Another rise in industry developed when the U.S. contracted Japan to make munitions for the Korean war effort. By 1965 manufacturing increased to four times that of pre-World War II levels.

This amazing recovery and growth is highlighted by Japans exports in 1950 being 820 million and imports 974 million and exploding to 16.7 billion in exports and just 12.7 billion in imports by 1969. This fostered an upsurge of Gross National Product (GNP) from 10.9 billion in 1950 to 202 billion in 1970.

The Japanese Yen and The Forex Markets

During World War II, the Yen followed a pattern of extreme instability and near the end of the war shifted between 70-400 Yen per US dollar. After the war, the price of the Yen was fixed to the US Dollar at Y360 to one. This form of pegging a currency to the US Dollar was instituted under the Bretton Woods system created in New Hampshire in 1944. The Bretton Woods system established the International Monetary Fund (IMF) and allowed various currencies to be switched into U.S. dollars which was then convertible to or backed by gold. This system continued throughout the American occupation and into the early 1970s until 1971 when the Vietnam war began to accelerate inflation in the U.S. and America started to run a trade deficit. With what was dubbed “Nixon Shock” gold was no longer pegged to the U.S. dollar and with one of the primary components of the Bretton Woods system gone, the Japanese Yen began to trade independently.

In the months since the tsunami the Japanese Yen has been very volatile by todays standards. Against the U.S. dollar it went down to around 76-78 which was the lowest it had been since post World War 2. If you are not familiar with foreign exchange markets or how currency is traded there are a couple things you should know. One, a lower yen price indicates a stronger yen. Secondly, this is damaging for Japan’s economy because it is heavily dependent on exports. A stronger Yen means that an equal amount of dollars are being exchanged for goods except once that money is repatriated it turns into less yen. In the last few weeks the Yen has jumped up to around 82-84 against the dollar thanks in part  to a G7 conference on March 17 that called for other countries to sell yen and buy U.S. dollars. In addition the central Bank of Japan has been printing money to the tune of 15 trillion yen and issued government bonds to exchange traded funds in amounts up to 10 trillion yen.

The extent of the damage of this years tsunami won’t be fully known for a long time. As of early April 2011 around 200,000 structures have been destroyed, 13,498 deaths and 14,739 were still missing. Four nuclear power plants comprised of 11 reactors experienced both major and minor problems. Transportation was affected, possibly not to the extent that it was disrupted during World War II, but more than 60 out of 70 of the JR train lines were damage. One 4 car train derailed and 23 stations on seven lines were washed out to sea. There was severe damage to Sendai Airport, one of the countries largest airports. Areas around the nuclear plants, the roads and railways are still unable to be inspected.

Similar to the years following World War II, the nation of Japan will need help from other nations to fully recover from this disaster. While Japan is a modern first world economy, printing your own money can only do so much. Initially, the rebuilding costs were estimated at 122 billion US dollars and now have been estimated at as much as 300 billion US dollars. As of early April the Japanese Red Cross is reporting donations of almost $1 billion US dollars, the American Red Cross $120 million US dollars, Taiwan $9.3 million and the Singapore Red Cross $3.15 million US dollars. With help and intelligent decisions from world leaders Japan can emerge stronger than it was before. For more information on how you can help visit the Yahoo News Blog here –

Sources of the statistics in this article #1.1 are credited at –