Economic Recovery Scenario Planning for a Tokyo Inland Earthquake

Abstract

The economic damage caused by a Tokyo Inland Earthquake disaster is estimated at 112 trillion yen by the Central Disaster Management Council of Japan. This figure alone is insufficient to present a concrete image of actual implications of an earthquake on economic activities and problems that arise in the recovery process, making it difficult to consider specific countermeasures. In order to cope with such a problem, we employed a “scenario planning” as one of the decision-making methods used in business management, under uncertainty to develop four scenarios of economic damage and recovery processes after the disaster. These scenarios are classified by the following two major uncertainties. The first uncertainty is a default risk of the Japanese government. In the event that Japan’s financial condition further deteriorates or the damage caused by the earthquake far exceeds the assumed scale, fund procurement to finance the recovery will become extremely difficult. The second uncertainty is a gap between demand and supply in a recovery-related market, especially in the construction sector. If the gap is sufficiently large compared with the scale of recovery, it is possible to swiftly restore houses, infrastructure and corporate facilities without price hikes. Contrarily, restoration will take time in case of a narrow gap in demand and supply, resulting in higher price hike risk. In an event of a Tokyo inland earthquake in a scale estimated by the Central Disaster Management Council of Japan, it is difficult to foresee that this alone will compel the Japanese government to all into default. However, the scale of the domestic construction market has shrunken to almost half from the time of the Hanshin Awaji Great Earthquake, and there is an apprehension that domestic price hikes could become serious and could physically delay restoration. In order to cope with such a situation, there is a need to consider international strategies including seeking international cooperation in restoration projects as well as assistance in debris removal, waste disposal and reconstruction.