Japan’s Economy Faces Questions After World's Most Expensive Disaster

Japan faces up to $309 billion in costs as a result of the magnitude 9.0 earthquake and subsequent tsunami that ravaged the country’s northeast region, making it the world's most expensive natural disaster on record.

Japan’s government issued a statement listing the losses related to the extensive damage to housing, roads, utilities and businesses across seven prefectures. According to a Cabinet Office estimate issued Wednesday, Japan faces direct losses of between 16 trillion yen ($198 billion) and 25 trillion yen ($309 billion).

These estimates surpass those issued by The World Bank, which on Monday said damage might reach $235 billion. Goldman Sachs earlier had estimated quake damage would be as much as $200 billion.

If the estimates are correct, the Japan disaster would exceed the losses from Hurricane Katrina, which devastated the New Orleans area and cost $125 billion, according to the Insurance Information Institute.

The long-term affects on the country’s economy remain a worry for many. Economic indicators released before the earthquake showed exports and production rebounding.

“My biggest concern is that a positive impact from reconstruction may take a while to materialize,” Akiyoshi Takumori, chief economist at Sumitomo Mitsui Asset Management Co. in Tokyo, told Bloomberg. “This earthquake and tsunami destroyed infrastructure and that will delay a recovery in production, a major driving force for the economy.”

The Cabinet Office initially maintained that the economic hit could be softened by the expected upswing in public works and construction as the region rebuilds. "The economy is moving toward recovery, but its self-sustainability is weak," it said.

Aside from the rebuild that will be necessary in the quake’s aftermath, utilities have imposed power rationing, many factories remain closed and key rail lines are impassable, say experts.

Japan's economic estimates do not include the impact of power shortages triggered by damage to a nuclear power plant, so the overall economic impact could be even higher. It also leaves out potential global repercussions.

Since the earthquake, Toyota Motor Corp., the world's No. 1 automaker, has halted its production because of difficulty securing components, including rubber parts and electronics. By Sunday its lost production will total 140,000 cars, according to reports. Further, Toyota confirmed on Wednesday that it will delay the launch of the Prius hybrid minivan in Japan due to disruptions in parts supplies.

"The aftermath of the tragic events in Japan will obviously alter the domestic economy," said Takuji Aida, an economist at UBS Securities Japan, in a report. "However, Japan's position in the global economy is such that there must also be some transmission of the shock to other parts of the world."

The government plans to introduce a supplementary budget to tackle reconstruction, though Cabinet members have said additional budgets will probably be needed down the road. The government also reportedly plans to inject public money into banks to help support lending as companies rebuild. It may finance that from a fund of 11 trillion yen ($135 billion) that is still available under a law on emergency support to banks passed after the 2008 collapse of Lehman Brothers.

Against the backdrop of disaster, Cabinet Office spokesman Noriyuki Shikata expressed confidence that the country could handle the massive task that lies ahead.

"This is not something that the Japanese economy cannot overcome," he told reporters Wednesday.