Japan: The Business Aftershocks
Comment of the Day

March 28 2011

Commentary by David Fuller

Japan: The Business Aftershocks

This is a very informative series of articles (may require subscription registration, PDF also provided) from The Wall Street Journal. Here is a brief sample:
Japan makes 60% of the world's silicon wafers-the building blocks of computer chips. The shutdown of two factories by the earthquake took out a quarter of the world's supply. Credit Suisse says the country also makes 90% of a substance called BT resin used to make printed circuit boards.

Inventories of each seem to be holding up, but other disruptions had a more immediate impact. The world's automakers, for instance, had trouble coping with the shutdown of a Hitachi Ltd. factory north of Tokyo that makes airflow sensors used to measure the amount of air coming into engines.

Hitachi makes 60% of the world's supply. This week, in a modern "for lack of a nail" story, General Motors Co. was forced to shut a plant in Louisiana, and Peugeot-Citroen had to cut back production at most of its European plants.

Producers in a variety of industries are still sorting out the possible impacts to their supply chains and scrambling for alternative parts or suppliers. Many understand the impact on their own supplies, but it's trickier trying to get a grip on disruptions to their suppliers' suppliers.

Ultimately, the pace of recovery in Japan will determine the severity of any shortages and the scale of the damage to businesses around the world.

Japan is the world's fourth-largest exporter, and companies like Caterpillar Inc. use the country as a platform for manufacturing equipment that they then sell to China and elsewhere.

David Fuller's view One hopes that Japan's economy recovers quickly. It probably will in some areas but not in others, pending develops. These will include rolling blackouts, aftershocks, the challenge of housing a large number of people who have lost their previous homes either permanently or temporarily, and especially growing concern over radiation leaks from the damaged Fukushima reactors.

Japan's economy will be adversely affected for at least a few months and this will have some global implications.

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