Economy being held up by power shortages

Ohi nuclear power plant of Kansai Electric Power Co on Ohi town, in Fukui prefecture, western Japan.

JAPAN - Prime Minister Yoshihiko Noda said at a meeting Wednesday of Cabinet members concerned with the country's energy policy that nuclear power will "continue to be necessary to stabilize and improve the country's economy."

Concern about electricity shortages due to the suspension of nuclear power reactors is one of the six main difficulties facing Japanese companies. Others include the strong yen, a delay in trade liberalization and high corporate tax.

Under such conditions, firms are taking such measures as installing private electric generators and reducing work hours. However, there are limits to how much they can do.

If expectations of power shortages continue, this may lead to an acceleration of companies shifting their production bases abroad, which would adversely affect the domestic employment situation.

Japan posted a record trade deficit of 4.42 trillion yen (S$72.5 billion) in fiscal 2011, due mainly to a sharp increase in imported liquefied natural gas for thermal power plants due to the suspensions of nuclear power plants.

According to an estimate by the Cabinet Office, if all nuclear reactors in the country are offline and thermal power generation continues to cover the power shortfall, power generation costs will increase by 10 per cent and the country's gross domestic product will decrease by 0.4 per cent to 0.6 per cent.

A prolonged trade deficit will result in reduced savings in the country. Currently, more than 90 per cent of government bonds are purchased with domestic savings originally generated by trade and other activities. If it becomes impossible for the domestic market to purchase the majority of government bonds, there is risk their values could dwindle and their yields could surge, as happened in Greece. In this scenario, the government would incur greater debt-servicing costs, dealing a severe blow to the nation's already dire fiscal condition.

The restart of reactors at the Oi nuclear power plant could be the breakthrough Japan needs to avert an economic crisis that has been hanging over the country since the Great East Japan Earthquake.

"I'll do my best to gain the understanding of Fukui Prefecture and Oi town," Economy, Trade and Industry Minister Yukio Edano said after Wednesday's meeting.

However, it will take six weeks for the Nos. 3 and 4 reactors at the Oi plant to become fully operational. This will be too late for the July 2 deadline when service areas of Kansai, Chubu, Hokuriku, Chugoku and Shikoku electric power companies are asked to start taking power-saving measures. Consequently, companies in these areas will see the arrival of summer under the power-saving system.

Procedures to restart reactors at the Ikata plant of Shikoku Electric Power Co., which are considered the next candidates for resumption, are stalled. This is because the government has yet to pass nuclear regulation bills, the linchpin of which is the establishment of a new nuclear regulatory agency. Observers believe that concerns over possible power shortages across the nation will be prolonged.

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