Despite the massive losses caused by the devastating March 11 earthquake and escalating worries of nuclear radiation in Japan, most analysts expect the Japanese economy to slip in the short term but rebound robustly in the second half of this year.
Kaoru Yosano, Japan's economic and fiscal policy minister, said Tuesday that "the basis of the Japanese economy is sound," denying that the impact of the 9.0-magnitude quake and ensuing tsumani would derail the country's economic recovery.
Japan's Nikkei stock index nose-dived nearly 11 percent Tuesday to close at 8,605.15 points in the wake of a 6-percent tumble Monday.
Yosano said sharp falls in equities were within expectations, underlining the government believed calm would soon be restored to the markets.
Over the last two days, Japan's central bank has pumped 23 trillion yen (282 billion U.S. dollars) into the financial system to quell fears that the country's banks could be overwhelmed by the impact of the massive disaster.
Takero Inaizumi, head of equities at Mizuho Investors Securities, said investors pulled money out temporarily as the scale of the impact of the earthquake was not clear.
Some blue chips such as Toyota Motor Corp. have been over-devalued, Inaizumi said, adding those stocks will become the main forces of recovery when the market turns warm.
Singapore's DBS Bank estimated Tuesday that the disaster that struck Japan last Friday will cost its economy about 100 billion dollars, tantamount to 2 percent of Japan's annual gross domestic product (GDP).
Masaaki Kanno of J.P. Morgan Securities estimated that the damage would be bigger than that in the earthquake in 1995, which cost 9.9 trillion yen (120 billion dollars).
After that earthquake, the Nikkei and the yen each plunged by approximately 25 percent over several months. Both, however, had mostly recovered by year's end.
Kanno sees Japan's growth being hit in the first half, but benefiting in the second half as reconstruction efforts kick in.
Takuji Okubo, chief Japan economist at French bank Societe Generale, believes that the Japanese economy will stage a V-shaped bounce.
He expects the economic output of Japan to fall sharply in March but will probably recover in the next few months.
Okubo, however, is slightly worried about the power shortage after the hydrogen blasts in the reactors of two Fukushima nuclear plants that supply 6 percent of the country's electricity.
J.P. Morgan cut its first-quarter forecast for Japan GDP growth to 1.7 percent from 2.2 percent. and to a mere 0.5 percent in the second quarter, also from 2.2 percent.
But J.P. Morgan expects the economy to rebound strongly later in the year as the reconstruction gains momentum, revising its third-quarter forecast to 4.0 percent from 2.5 percent and its fourth-quarter estimate to 2.5 percent from 2.0 percent.
Japanese Finance Minister Yoshihiko Noda said Monday that an extra budget to fund reconstruction efforts will likely top the amount spent following the Kobe quake.
But Japan's debt soared over 200 percent of its GDP, which was a heavy burden on the Japanese economy.
Moody's Investors Service has warned that it may cut Japan's sovereign credit rating if government policies fall short of comprehensive tax reform needed to bring ballooning public debt under control.
Japan's earthquake and tsunami are expected to have only a mild impact on Southeast Asian economies, said David Carbon, head of economic research at DBS Group Research.
Deng Sian, chief economist at the Bank of East Asia in Hong Kong, said the current global economy recovery is very steady and the earthquake will not slow down the pace.
"Although the regional financial markets will see increased fluctuation, what is happening in Japan will not have a domino effect on the Chinese economy," Deng said.
