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The economic recovery ahead for Japan

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Kai Ryssdal: Between the aftershocks that’ve been hitting Japan all day and the tsunami that’s been working its way down the coast of North and South America, we still don’t know exactly what the final toll will be once all’s said and done. What we can say is that the biggest city in one of the world’s biggest economies has basically been brought to a standstill.

We’ve reached Kenneth Cukier, he’s the Japan correspondent for The Economist magazine in Tokyo. Welcome to the program.

Kenneth Cukier: Thank you.

Ryssdal: First of all, describe what it’s been like for you there today, I imagine a long day and a long night.

Cukier: A long day and a long night. At 2:45 I was working; at 2:46 I was looking up realizing that the building I was in was shaking to its very foundations, and I was looking for an escape route. We’re used to earthquakes and tremors in Tokyo — it’s part of everyday life — but not of this magnitude at all. The problem in this instance is you realize that the whole playbook of what to do in a circumstance like this doesn’t work. All of the things that you’re supposed to do start to look really silly when you realize that getting under a table doesn’t help you if the entire building collapses. Going outside doesn’t help you if things outside fall on top of you. Nevertheless, it comes in waves, and you take your luck like I did, and during an intermission, I made my way at a brisk pace to an environment where I knew I’d be safe.

Ryssdal: Frame this earthquake for me in the economic context, would you? Japan been hit as hard as anybody by the recession — it’s got enormous debt loads, and now faces enormous re-structuing and rebuilding costs.

Cukier: That’s exactly right. Economically, there’s two problems. The first one is that certain factories have to close — Nissan, in particular; suppliers to Toyota; Chemicals company, for example, has had to suspend its operations. That might have jitters around the world; it might even create ripple effects if these are vital goods. We don’t know yet what they’re making

The second problem will be for the debt. Japan doesn’t have a lot of money to spend because they’re so indebted, but they will have to. Now in the short-term, this will be good. The economy will of course have to pick up if you’re pouring billions of dollars into infrastructure spending. But in the long-term, this is a negative because Japan will have to pay that back someday.

Ryssdal: Do I have it right that most of the Japanese debt is held by the Japanese people?

Cukier: That’s absolutely right. Ninety-five percent of their debt is owned domestically. That helped to, considerably politically, if you want to fiddle with the economy, to pay back the debt in different ways. You can inflate it, you can tax people, you can monetize it, securitize it — which you can’t do if it’s foreign-owned. However, it still has to get paid back.

Ryssdal: Talk to me, though, about Monday morning and the weeks and months to come when things like airlines and insurance companies and car manufacturers realize the impact that this quake has had on a production process and their ability to operate.

Cukier: The good news is that it happens on a Friday afternoon, so you have two days where the stock market’s not open, where employees are not going to work and the government can get its act together. And on Monday, I think you will see a nation transformed. Japan does crises really well. They all snap to order, click in the same direction, march straight ahead. Rivals become friends in situations like this, or certainly partners, and they collaborate, they help each other. Logistics firms that don’t work together will work together. Pharmaceutical companies, hospitals. You mentioned insurance companies — yes, insurance companies will have to pay a lot, there are policies — but it’s not as bad as you think.

Ryssdal: Kenneth Cukier, he’s The Economist magazine’s bureau chief in Tokyo. Kenneth, thank you so much for your time.

Cukier: My pleasure.

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