Japan: Abenomics Needs Cheap Nuclear Power to Work

Everybody knows that Japan has an energy crisis. We also know that the yen has greatly depreciated, by some 20 percent in just a few weeks. It’s time to put these two facts together.

“Abenomics,” the shorthand for the aggressive economic strategies being pursued by Prime Minister Shinzo Abe, is the hot thing in Asia. What wonders will the weak yen work for Japan’s export machine? Is a recovery just around the corner? Despite its volatility, Japan’s stock market says so, and foreign investors, in particular, like the prospects.

Yet what makes exports more competitive also makes imports more expensive. After the March 11, 2011, Fukushima disaster, Japan turned off its nuclear-power plants and stepped up imports of energy. Looking just at the four biggest categories (oil, liquefied natural gas, coal and liquefied propane gas), the monthly value of Japan’s energy imports jumped from 1.4 trillion yen (before March 2010) to 2.2 trillion in March 2013. In March, that was about $17 billion; now add 20 percent in exchange-rate shifts to get $22 billion per month. Energy imports constitute about one-third of total imports, and since Fukushima, imports have grown to account for 17 percent of gross domestic product, up from 12 percent.

No wonder Japan is running a trade deficit. Yet the export machine can’t fix the economy if energy imports keep rising.

Nuclear Dependence

If all of Japan’s nuclear-power plants were running at full capacity, they would provide about 30 percent of electricity, and 11 percent of total energy consumption. With the current shutdowns, nuclear contributes only 2 percent of electricity, with oil and gas filling the gap.

Setting aside the question of greenhouse gases and global warming, the economic question is: Who will pay for the growing costs of energy imports? Industry, which consumes about 36 percent of energy, is supposed to lead the recovery, and some of Japan’s export leaders are energy guzzlers. If energy costs rise, the companies that produce the bulk of Japan’s world-class products will either lose out or -- to prevent this from happening -- move production elsewhere. Either outcome would surely halt Japan’s domestic recovery.

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