Daily Economic Update: Japan

Each day the Research staff takes a look at recently released economic indicators, addressing what these indicators mean for REALTORS® and their clients. Today’s update highlights the economic impact of the tsunami disaster in Japan.

• The human tragedy in Japan overshadows any economic impact, and our thoughts here at NAR Research go out to the survivors as they rebuild.
• It is worth examining what could happen economically in the days to come. There will be a massive rebuilding effort, no doubt successful, just as Japan did in the aftermath of the Second World War. That will lift Japan’s GDP over time.
• However, in the short-term, there will be factory shutdowns. There could add to a shortage of some critical parts, particularly related to electronic products, and thereby lift inflationary pressure for these goods worldwide. Less nuclear energy usage will mean more oil consumption, which could also add to inflationary pressure on energy products.
• The money for rebuilding will be from government borrowing. Japan already has one of the highest government debts in relation to the economy, measurably higher than the national debt in the U.S. But unlike America, most debt borrowing is from Japanese citizens. So in a sense Japan owes money to the Japanese. In America, about 40 percent of the debt is held by foreigners, which despite creating lower debt than in Japan, makes it more alarming. Eventually, more borrowing by Japan will mean less total global savings to purchase U.S. debt. That means the U.S. government will need to offer higher interest rates to borrow once Japan slowly regroups and recovers.
• In separate news, annual inflation expectations in the U.S. over the next ten years increased to 2.55% last week while mortgage rates remained flat at 4.94%. The short term movement in expected inflation was attributable to an increase in oil prices as well as an expectation of higher economic growth.