Japan Prime Minister: crisis will be overcome

Prime Minister Naoto Kan says he is confident Japan will overcome the earthquake-tsunami crisis.
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THE biggest earthquake in Japan's history left the global equities and insurance markets reeling as experts spent the weekend grappling with the financial impact on the world's third-biggest economy and the knock-on effects to the global recovery.
Global markets wobbled, oil prices closed lower, the futures market for grain commodities dived and shares in global insurance and reinsurance stocks fell as analysts began to tally up the losses caused by the earthquake, the tsunami and the implications of a nuclear meltdown in the wake of cooling system damage.
Initial estimates of the damage to the Japanese economy are about $100 billion, with the global insurance industry believed to be exposed to less than $15 billion.
The Japanese government will bear most of the costs as it reinsures most homeowner earthquake insurance policies in a giant pool fund.
Share prices in Japan are expected to fall further when trading resumes today, while in Australia the futures market suggests a gain on opening. But given news over the weekend about the state of nuclear fallout, the loss of life and the disruption to economic activity, investors will be grappling with the impact for some time.
In the short term, economists believe the impact on the Japanese economy will be negative, in part due to physical damage to infrastructure and capital stock and because of the psychological trauma suffered by the Japanese, which is likely to trigger risk aversion, a drop in consumer confidence and an increased urge to save.
This could prove a negative for Australia as Japan is its second biggest export market, accounting for more than $37 billion of exports last year.
Investors expect Japan will be forced to increase its already bloated borrowing in a weak economic environment to finance the massive rebuilding project.
The damage has also triggered a debate about whether the earthquake will be a market-changing event for the insurance sector. Since the start of the year natural disasters, including floods and a cyclone in Australia and an earthquake in New Zealand, have wreaked havoc on the insurance and reinsurance industries, leaving the sector exposed to more than $50 billion in damages.
With so many catastrophes, the expectation is that prices will be pushed higher in the July 1 reinsurance renewals. If prices rise, general insurers will be forced to pass them on in higher premiums.
The insurance industry has been suffering from a so-called soft market. That happens when their prices come under pressure as insurers and reinsurers have lots of spare capital and compete more for business.