The Likelihood of BoJ Easing Next Week

The Fed’s Thursday easing announcement paves the way for the BoJ to announce its own asset purchase program expansion at next week’s policy meeting, in line with our previous view. There are certainly risks to this call: Just today the government released machine orders data showing a far more resilient July than expected, and earlier […]

Japan: Inflation Expectations and Real Interest Rates

There is evidence that inflation expectations are firmly moving into positive territory after languishing below zero following the onset of the global financial crisis. The 7y breakeven has stabilized at around 0.53% over the past couple of weeks, after averaging -1.1% from December 2008 to December 2011. This jump has helped move the 7y real […]

Yoshihiko Noda: On Record

On August 29, 2011, Japan’s Finance Minister Yoshihiko Noda was elected head of Japan’s ruling-Democratic Party of Japan (DPJ). He is expected to be approved as Prime Minister on August 30 by the DPJ-controlled Lower House. The following sampling of comments by Noda explain his positions on forming a coalition, Japan’s fiscal and monetary policy, […]

Japan’s Surging LNG Demand

Introduction Uncertainty over the future of nuclear power in Japan and the spectre of power-supply shortages continue to weigh on business sentiment and pose downside risk to Japan’s economic rebound. More than five months have passed since the March 11 earthquake and tsunami and only 15 of Japan’s 54 nuclear reactors are in operation (see […]

Potential DPJ-Replacements of PM Kan

On June 22, the last day of Japan’s parliamentary session, the Diet approved a proposal by the ruling-Democratic Party of Japan (DPJ) to extend the current session by seventy days in order to ensure passage of legislation for post-earthquake reconstruction. This follows a pledge made by Japan’s Prime Minister Naoto Kan to step down before […]

RGE’s Wednesday Note – Japan’s Production Shortfall Drags on EM Asia Supply Chain

The amplified shock from Japan’s March 11 earthquake, then tsunami, then nuclear crisis has rippled through the supply chain of its emerging Asia (EM Asia) neighbors. Production shutdowns and weakened demand in Japan began to register in Asia’s trade channels in the weeks following the disaster. As the extent and duration of disruptions to production in Japan become more apparent, the severity of regional supply chain interruptions and the effects on EM Asia’s industrial production and export volumes and prices through 2011 can be better anticipated.

Reversing the Decline of Late Stage Capitalist Societies: Japan and the U.S.

Late stage capitalist societies like Japan and the U.S. already have the capacity to produce more than enough of the basic goods needed for our biological survival – such as food and shelter. The production of basic goods has become so efficient that we need fewer and fewer people to work to provide them. But at the same time, the population has grown because of such efficient, mass production. Because job creation and wage growth didn’t keep up with rising living costs – leading to lifestyle changes such as the two-income family, post-baby boom families got smaller, closing off a demographic bubble that will soon become a national budgetary headache. In essence, Japan and the U.S. have become victims of their own success.

Meeting Japan’s Energy Needs: An Update

It has been two weeks since Japan was devastated by the March 11 earthquake and tsunami, which shuttered in around 20% of the country’s nuclear capacity and 30% of its refining capacity. According to IHS-CERA, 2 GW of Japan’s nuclear capacity have been permanently lost as a result of injecting seawater into reactors, while another 10 GW—8% of Japan’s total electricity—will be shut in “for several years.” The following addresses how Japan will cope with meeting its electricity and fuel shortfalls, and the obstacles facing the energy sector and their broader implications. (See March 17 RGE Analysis on options available to Japan for meeting energy needs.)

Release of strategic oil reserves and reduction in economic activity will limit crude oil import growth.

Why Will Japan Continue to Experience Power Shortages?

The EIA reported Japan had 281 gigawatts (GW) of installed electrical generation capacity as of 2008. A total 12 GW of that went offline due to automatic shutdowns (i.e. nuclear reactors shut off as a precaution whenever a major tremor is detected) or structural damage (i.e. damage to Fukushima Daiichi nuclear reactor plus a few thermal power plants), leaving  269 GW of generation capacity. Transmission losses are normally 5% of the total electricity generated, which effectively leaves 256 GW of electricity available to customers. Given that national electricity demand peaks at a pre-recession level of 175.2 GW as of FY2008 according to FEPCO , Japan has plenty of generation capacity to spare. Yet, rolling blackouts continue to roil Japan (except on weekends due to voluntary electricity conservation) because of inadequate capacity to transmit and transform electricity.

Impact of the Japanese Quake on Coal

Japan relies on coal to meet around 25% of its electricity needs. According to Platts, as of March 16, five thermal power stations, the equivalent of 10% of Japan’s installed coal-fired generation capacity, were offline. In the short term, this suggests that coal will play less of a role in meeting electricity shortages than LNG and oil. However, once some of these power stations resume operations, coal could play a larger role in meeting electricity needs. According to Barclays, assuming shut in capacity is 12,000 MW, using the same share of coal that was used to meet lost capacity from Kashiwazaki-Kariwa, Japan will increase its exports of coal by 7,800 tonnes per day. Domestic opposition to the use of coal, as well as policies designed to reduce Japan’s coal consumption, mean it is likely that coal will be used to meet demand in the medium term, but will not be a long-term alternative to nuclear power.

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