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Tuesday, 15 March 2011

Nikkei Index gets hammered on threats of multiple nuclear disasters in the power plants of Fukushima and Onegawa. One glimmer of hope: Japan is knocked down, but not defeated

You and I both know the score,
you can't go on like this forever.
So it's with regret that I tell you now
that from this moment on,
you're on your own!

Today the Nikkei Index lost another staggering 10.55% to finish at 8,605.15 points. A loss of 1,015 points, after it lost yesterday already 6%. Since February 21, this year's high up to now, the Nikkei already lost more than 20% and 17% alone this week. The Japanese exchange gets hammered with blow after blow.

The earthquake that shattered the Sendai region, flattening tens of thousands of houses, buildings and factories was only the first blow. Afterwards the devastating tsunami did its terrible job by sinking multiple vessels and fishing boats and sweeping the Japanese coastline clean of all things developed by nature and built by human hands, destroying everything in its path. It is expected that especially the tsunami caused the thousands of casualties that are now to be mourned and caused the lion’s share of the damage to factory buildings and the power plants that are now under jeopardy.

And now on top of things there is the nuclear aftermath of the earthquake. In themselves the events in the nuclear power plants caused not much damage yet, but the threat of multiple meltdowns is horrifying: not only is there the threat of meltdowns in uranium reactors, but also a much more dangerous plutonium reactor is told to be in jeopardy. Plutonium is considered the most toxic substance on earth, 1 microgram being enough to cause fatal lungcancer when breathed in.
As my business card doesn’t mention “nuclear physicist”, the following explanation is under restriction. The problem with the nuclear power plant in especially Fukushima is that even after the nuclear reactors are switched “off”, by placing the graphite control rods between the uranium fuel rods, the temperature still rises considerably due to the nuclear reactions of the radioactive byproducts that are produced during operation.
If the cooling process fails then [like what is happening in Fukushima now – EL], the temperature may increase to such a level that the graphite control rods can burn up or a partial meltdown of the fuel rods takes place. Especially when the former happens, the reactor may become critical (i.e. unstoppable exchange of neutrons between the fuel rods without any controlling possibilities) and a full meltdown may take place.
In case of a full meltdown of the nuclear fuel, the metal reactor vessels will melt under the unbearable temperature of well over 1650 degrees Celcius ( 3000 degrees Fahrenheit) and the fuel can in theory sink into the earth as an unextinguishable mass of molten, extreme radioactive metal. The worst-case scenario is when the meltdown reaches a mass of groundwater, causing a hydrogen explosion that blasts large quantities of radioactive material in the air. This would cause an enormous amount of pollution and radiation.
However, this has never happened yet in the history of nuclear energy, although Chernobyl was a very close call. . ,. At least the big difference with 1986 is that everybody is warned right now and can take countermeasures.

Although these are the main problems that the Japanese have to deal with, the loss of production capacity is also very serious. A number of plants operated by large brands like Toyota, Honda, Toshiba and Sony have been heaviliy damaged or even been totally destroyed by the killer wave that appeared after the earthquake. Although these brands will survive by increasing their production capacitity in countries like China, the consequences for their Japanese workers are terrible.

These consequences are:
-     the loss of jobs,
-     the loss of their homes and their possessions
-     and even the loss of a future
for the people that live in the Sendai area.

It is really a terrible situation for a country that was already living in a economic downcycle for more than 20 years. Compare the all-time high for the Nikkei index of 38,957 points in 1989 to the 8,605 points that is measured at the end of today and you know what I’m talking about.

But… it is always darkest before dawn and therefore I want to conclude this piece with a glimmer of hope.

Japan is a very old country with a long tradition of fighting the forces of nature and dealing with domestic situations and with other civilizations. They always overcame their problems. I think it is impossible to break a people that even overcame the Hiroshima and Nagasaki attacks and that used the greatest tragedy in their history as a motivation to become the second industrial nation in the world.

And maybe this earthquake might be the trigger for a definitive recovery of the Japanese economic crisis that already lasted much too long. The recipe for this is not easy, but very straight forward: 

  • writing-off the debts that are impossible to pay back; 
  • telling their greatest creditors that they can wave part of their debt goodbye;
  • raising the interest rate to an amount that motivates people to save money, thus enabling new investments
  • dealing with the banks that caused all trouble to begin with; 
  • starting to rebuild the country (metaphorically and litterally) from the ground, thus creating new dynamics in the Japanese society.
Instead of building bridges to nowhere, the Japanese can start building new homes for the people of the Sendai region and new factories and small companies for the workers. The Japanese stock exchange was frontrunning on this prospect as all building (material) companies quoted on the stock exchange saw their stock going through the roof.

It is a giant task, but I am certain that the Japanese are able to do it. I wish them much success in their struggle for recovery.

1 comment:

  1. BOJ has already expanded their QE program from 5 to 10 Trillion Yen (120billion), to have the scale of QE 2 in the US, they need to implement the full size 30 Trillion Yen. As the government already indebted up to 200% of GDP, they are treading a fine line going forward. Japanese corporate, government and individuals own up to 850 billion worth US Treasuries. If they need to dip into their savings for reconstruction. Keep an eye for the yield curve on US debts.

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