On previous posts we have done a brief analysis on the devastating effects of the earthquake-tsunami combo on the Japanese economy. To have a more general and complete view of the events, one has to look at the other side of the story too, the collateral effects the damage suffered by Japan will have on the global economy. Over the last days we have heard words of relief from Japan's government and from analysts saying that the bite on Japanese GDP will not be as big as thought on first instance. But, no matter how fast the world's third biggest economy can recover from the disaster, the weight of said economy makes it impossible to dismiss the effects it will have in the coming months (and is having as of now) on the march of the global economy.
Countries affected
The first wave to affect the global economy was a logic fund repatriation, specially from Japanese banks and insurance companies in need of liquidity to begin with reconstruction tasks at home. This initial repatriation made the yen go higher instead of immediately falling as expected, but this is not something to fear specially for the rest of the world. What some people are fearing is that Japanese mutual funds, hedge funds and instruments alike began to massively withdraw their positions over the rest of the world to take their money back home. If this movement is done gradually no significant damage would be done, Japanese money would simply be substituted by somebody else's money. But if this repatriation was to be done massively it would pose an important threat, specially for emerging markets. Emerging markets usually rely on bigger economies' capital to fund their growth, to the point where a runaway of Japanese money could partly derail short-term growth expectations for some emerging markets. I am not talking China, Russia or Brazil here which are exposed but big enough to not notice a heavy change. I am talking about smaller markets like South Korea, Singapore, Hong Kong, Taiwan, Malaysia, Thailand, South Africa or Chile.
