http://www.theage.com.au/money/investing/beware-the-land-of-rising-yen-20110319-1c1a0.htmlTHE economic aftershocks of the earthquake in Japan are yet to reach us, but they will.
I'm afraid this is going to be a long, slow burn, in which Japan suffers most but none are left unscathed.
The markets aren't quite sure what to do. But when in doubt, as the old hands are probably saying, don't just sit there, panic!
Still, they are leaning towards accepting lower global growth for now, which will be made up for later in the year as Japan rebuilds - a sort of macro version of time-shifting.
Don't bet on it.
Japan's economy was shrinking in the December quarter, its government is shaky and the nuclear plants have been found to be vulnerable in the only country that has been nuclear-bombed.
Such a severe crisis of confidence could easily tip it into a 1930-type depression, where prices (except oil, inevitably) and incomes fall.
How would the new economic superstar, China, or for that matter, the rest of the region, not to mention Australia, cope with that?
We know already global growth will be lower as a result of the tsunami and nuclear disaster, though economists disagree on how much.
And despite being in, or close to, recession for two decades, Japan still has a lot of clout in the global financial system.
In fact, it's the biggest lender to other countries, especially the US.
The weird thing is it's also the biggest borrower - from itself.
Japan's government debt-to-GDP ratio of 225 per cent is worse by far than any other advanced country, another reason to suspect a prolonged slump in household and business spending since it is obvious taxes will rise.
By the way, the reason Japan can lend to others is because it also runs a huge trade surplus with them, which is second only to China's.
But the Japanese are already pulling money back home, which could precipitate the long-feared crash in bond prices in the US.
This would drive up interest rates in the US, which would choke off its recovery and could even, gulp, create a GFC 2, where banks are starved of funds.
Already the yen is soaring, which is odd considering the problems Japan faces. But the higher it goes, the worse it will be for the Japanese economy and the shakier global sharemarkets will be.
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