Kenzo Capital Coporation

9.0-magnitude earthquake in Japan

A 9.0-magnitude earthquake occurred off the northeastern coast of Japan on 11 March (Friday). The earthquake, with its epicenter in the Tohoku-Sanriku area, was the largest ever recorded in Japan.

We would like to communicate the assessment of professional specialists on the effects of this earthquake with focus on the following 3 topics:

-Radiation risk from the nuclear plants

-Effects on the Japanese economy

-Damage to institutional grade buildings

Radiation risk from the nuclear plants:

The British Embassy in Tokyo held a meeting of a number of qualified nuclear experts from the UK. The chief spokesman was Sir. John Beddington, Chief Scientific Adviser to the UK Government. The current situation in Japan was assest as follows:

In case of a ‘reasonable worst case scenario’ (defined as total meltdown of one reactor with subsequent radioactive explosion) an exclusion zone of 30 miles (50km) would be the maximum required to avoid affecting peoples’ health. Even in a worse situation (loss of two or more reactors) it is unlikely that the damage would be significantly more than that caused by the loss of a single reactor.

The situation is very different from Chernobyl, where the reactor went into meltdown and the encasement, which exploded, was left to burn for weeks without any control. The secrecy over the Chernobyl explosion is in contrast to the very public coverage of the Fukushima crisis.

A Quote from Bloomberg News, March 17:

Radioactive Risk to Tokyo Limited Even at Worst, U.K. Says

The risks to human health from damage at Tokyo Electric Power Co.’s Fukushima Dai-Ichi atomic plant are limited to the area around the facility, according to the U.K.’s Chief Scientific Officer John Beddington. “The 20 kilometer exclusion zone that the Japanese have actually imposed is sensible and proportionate,” Beddington said, according to a transcript of a conference call yesterday. The worst case scenario would result in an explosion that could send radioactive material about 1,600 feet in the air, he said.

Workers at the Fukushima facility, damaged after the March 11 earthquake, are struggling to keep the plant’s reactors cool and to control pressure inside the containment vessels. If they fail to do so, pressure would build up inside the reactors and cause the core to melt, Beddington said. As it melts, the material will fall and react with the concrete and other materials on the floor, he said on a call with the British Embassy in Tokyo.
“In this reasonable worst case you get an explosion,” he said. “Now, that’s really serious, but it’s serious again for the local area. It’s not serious for elsewhere.”

Assuming that weather patterns drive radioactive material toward Tokyo, there would be “absolutely no issue” for human health, he said. Even following the disaster at Chernobyl, there were no radiation-related problems outside the 30 kilometer (18.6 mile) exclusion zone, the scientist said.

Effects on the Japanese economy

The following are quotes from an immediate assessment on the effects of the earthquake by Noruma Securities:

The size of the economy of the main earthquake-affected region is roughly the same as that of the area hit by the Great Hanshin (Kobe) earthquake in 1995, but with this Tohoku Pacific (Sendai) earthquake affecting road networks, power plants and other infrastructure over a wide area, we expect the short-term economic impact to be greater than the Kobe earthquake. The area affected by the Sendai earthquake has a large number of IT-related companies. Due to the earthquake and tsunami, the Japanese economy is now likely to take longer than we expected to exit its current lull. We had projected an Apr–Jun exit but now forecast Jul–Sep or possibly Oct–Dec.

We believe the earthquake has increased the likelihood of additional monetary easing measures by the BOJ, and we expect these measures to be implemented in conjunction with the announcement of new government stimulus measures.

Government stimulus measures: The government announced supplementary budgets after the Kobe earthquake that provided a total of ¥3trn in spending to help with rebuilding. We expect government stimulus measures for the Sendai earthquake to exceed this level.

Based on what occurred after the Kobe earthquake, we think an all-out slump in the Japanese economy caused by the Sendai earthquake is overly pessimistic.


Japan has always shown its greatest strength at times of natural or manmade disasters. After the Kobe earthquake in January 1995 the economy shrank for 2 month before a dynamic recovery started already from the last month of the same quarter.

Damage to institutional grade buildings

Nikkei Real Estate organized the announcements from J-REITs as of the morning of March 14 and found out that there was no significant damage to the properties. By the end of March 14, all REITs finished announcing the status of their properties and no major physical damage was seen, though 3 retail properties owned by Mitsubishi UBS REIT stopped operation and 3 logistics properties owned by Mitsui Trading Company REIT continue to be investigated.

16 J-REITs own 42 buildings in Sendai and a total of 17 J-REITs own 57 properties in the Tohoku region. 12 of these 17 J-REITs have confirmed that they have no significant damage to their buildings that will compromise operation and/or security of the buildings. The remaining 5 J-REIs had not completed their assessment.

In this connection:
Moody’s Japan announced on March 15th that direct negative impact of the earthquake on the JREITs, real estate companies and CMBSs that are rated by the firm is limited because their properties located in the stricken area are limited. Moody’s rates 18 REITs and the properties in the area account for 0.8% of their whole properties on a purchase-price basis. The company rates 79 CMBSs and the collaterals in the area account for 0.7% of the total on a initial-estimation basis. The company rates Mitsui Fudosan, Mitsubishi Jisho, Sumitomo Fudosan, etc. and they have few properties in the area.

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