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Yoshikami: Japan's Quiet Uncertainty

The planes heading to Japan remain scarce of travelers. The airports struggle to continue business as usual with the huge reduction in air passenger flow. It is quiet in Japan.

The developments out of the Fukushima Daiichi nuclear power plant continue to be gloomy. It appears that the long-term consequence of the earthquake and tsunami of March 11, followed by the radiation leaks from the nuclear power plants, will be worse than anyone could imagined. There is now talk of a permanent ring of isolation away from the Fukushima plant where vast areas will be uninhabitable for who knows how long.

Fishermen and others are displaced (perhaps permanently) from livelihoods that have been a core part of families for generations. The power grid is massively disrupted and rolling blackouts will impact Japan beyond summer. The list of problems facing Japan is long; from supply-chain disruption to power cuts and a monumental rebuilding task.

There seems to be little news to merit any optimism. The challenges facing Japan are great and daunting.

A pedestrian road has collapsed in the massive 8.9-magnitude earthquake in Urayasu city, Chiba prefecture. The earthquake shook Japan, unleashing powerful tsunamis that sent ships crashing into the shore and carried cars through the streets of coastal towns.
Toshifumi Kitamura | AFP | Getty Images
A pedestrian road has collapsed in the massive 8.9-magnitude earthquake in Urayasu city, Chiba prefecture. The earthquake shook Japan, unleashing powerful tsunamis that sent ships crashing into the shore and carried cars through the streets of coastal towns.

But let's not discount the resilience and determination of the Japanese and let's not dismiss the Japanese economy. As I stated in recent appearances on CNBC, while the disaster is truly devastating, the Japanese economy and the resolve of the people are greater than the disruption brought about by nature.

But take a step back and look at the big picture and try to have a balanced perspective. There is a less gloomy alternative view.

Many Japanese companies are multinationals; in a sense they merely have their headquarters in Japan, with a high proportion of their revenues coming from outside of Japan. Automobile companies such as Nissan and Toyota are currently impacted with several production plants operating at reduced output. However, the impact is unlikely to be significant on a long-term basis. Yes, private consumption and productivity are likely to fall, but don’t forget there is an economic recovery taking place around the world. This broad recovery will help Japanese companies bounce back.

Tokyo Electric Power, or TEPCO, the utility at the center of the worst nuclear accident in the past two decades, will likely be nationalized and this obviously is not good news for its shareholders. But there will be other utilities that will step in. This means opportunities for investors.

CNBC - Disaster in Japan - Japan Earthquake and Tsunami
CNBC - Disaster in Japan - Japan Earthquake and Tsunami

The G7 has very clearly stated that they intend on supporting the yen and wants to avoid a massive strengthening of the yen as a result of yen repatriation. The impact of G7 statements is already being felt in the currency markets. And while the Japanese government is already awash in huge deficits, they have stated that they are willing to do what is necessary to keep the 2010 Japanese economic recovery on track.

Investors and analysts have been comparing this disaster with the Kobe earthquake of 1995. Yes, the circumstances are different (the price of oil was not $100 a barrel and the yen was trading much differently than it is now versus the dollar), but the similarities cannot be ignored. After a slump in Japan’s GDP growth, the economy bounced back and GDP gained strength six months after the Kobe earthquake.

A thread that runs through these difficult and challenging circumstances; Japan does have a history of recovering from adversities. As the TEPCO workers in Japan give their lives for their fellow citizens, we should understand that this is representative of the determination of the Japanese populace to bounce back from this difficult challenge.

As we see this drama play out, expect the Japanese economy to recover. It will take time but Japan will recover.

Michael A. Yoshikami, Ph.D., CFP®, is CEO, Founder, and Chairman of YCMNET’s Investment Committee at YCMNET Advisors, Inc., a registered investment advisory firm. He oversees all investment and research activities of YCMNET. He is a respected lecturer speaking frequently on market issues, tactical asset allocation, and investment strategy. Michael and YCMNET were ranked as one of the top 100 investment advisors in the United States for 2009 and 2010 by Barrons. He appears regularly on CNBC and CNBC Asia and can be reached directly at m@ycmnet.com