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Analysts Caution Against Japan Panic That Drove Down Markets Analysts Caution Against Japan Panic That Drove Down Markets

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Analysts Caution Against Japan Panic That Drove Down Markets

Commodity traders struggled on Tuesday to assess the impact of Japan's natural and nuclear-power disasters on the world economy.(Scott Olson/Getty Images)

photo of Jim Tankersley
March 15, 2011

Markets aren’t perfect. In times of crisis, they sometimes overreact, then quickly correct. That may have been the case on Tuesday morning, when worries over Japan’s escalating nuclear disaster sent stocks tumbling – before analysts rushed in to reassure investors that the Japanese crisis need not spell doom for the global recovery.

Several leading economists said on Tuesday afternoon that Friday’s earthquake in Japan, along with its tragic aftermath, remains unlikely to undercut still-wobbly growth in the United States and across the world. Others cautioned, however, that the global effects could still turn calamitous, in the event of a full-scale meltdown at the Fukushima Daiichi nuclear-power plant.

Perhaps the most encouraging statement was silence – the omission of the word “Japan” from the statement that the Federal Open Market Committee released at the conclusion of its meeting Tuesday afternoon, in which Federal Reserve Board officials, in an upgrade from last month, declared that the economy is “on firmer footing.”


Other economists sounded a chorus of optimism. “The possible effects on the U.S. economy from the earthquake in Japan appear less damaging than the recent weakness in U.S. markets would imply,” Deutsche Bank analysts wrote, adding that the immediate impact to American growth may turn out to be positive, because the United States runs a $60 billion trade deficit with Japan.

Testifying before the Senate Banking Committee, Treasury Secretary Timothy Geithner dismissed concerns that reconstruction costs in the wake of the quake and tsunami could force Japan to sell U.S. Treasury bonds and thus affect interest rates.  “Japan is a very rich country,” Geithner said, “with a very high savings rate, and it has the capacity to help deal not just with the humanitarian challenge but the reconstruction challenge they face ahead.”

Stock traders seemed to agree as the day progressed, with the Dow Jones industrial average rising steadily after a sharp, early fall. Oil prices fell slightly, easing some of the pump pressure – at least momentarily – that has recently dampened U.S. consumer confidence.

In fact, it is confidence, not economic fundamentals, that appears to be the world’s main vulnerability from the Japanese crisis.

As Nariman Behravesh, the chief economist at IHS Global Insight, noted in a research release on Tuesday, Japan hasn’t been an “engine of global or Asian growth for some time” – which means that a Japanese crisis has limited ability to impact the world recovery.

But, Behravesh added, “far less easy to quantify is the potential damage to confidence, especially for a fragile consumer.… The Japanese earthquake, with extreme uncertainty over the extent of the nuclear disaster there, may add to a sense that global events are spinning out of control. This can make consumers – and, perhaps, businesses too – more fearful, which in turn can lead to postponement of decisions to purchase or hire.”

It was such fear that drove markets down on Tuesday morning. Whether the fear returns in force on Wednesday could depend on the efforts of 50 Tokyo Electric Power Company workers, who at this point, may well be straining to avert an economic meltdown as well as a nuclear one.; Twitter: @jtankersley

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