Japan Comes Back to Nuclear

Guild Investment Management  |

Fukushima has been far more costly to Japan than you would think. The 2011 meltdown led Japan to shutter all of its 48 nuclear reactors, which had until then generated nearly 30 percent of the country’s electricity.

You could imagine the economic effects on the United States if 30 percent of its electricity supply went offline overnight.

Trade Deficit Soars

Since Japan has virtually no energy endowment of its own, it could not do what the U.S. might do -- for example, mine more coal. The removal of nuclear power from its energy mix has meant buying more fossil fuels. 

And this has happened while the Bank of Japan is doing massive QE to stimulate the economy, creating inflation and cheapening the Yen.

That means Japan’s energy imports have spiked dramatically, and its trade balance has hit a record negative:

This is threatening to undo the positive effects of “Abenomics,” the reforms and monetary stimulus policies enacted by Prime Minister

Shinzo Abe in an effort to reverse Japan’s long decades of stagnation.

We have been believers in the macroeconomic story that after a nearly twenty four year slide, that a Japa- nese rebirth is possible, and have been watching carefully since Abe’s election to see if he would really be able to implement change. We’ve been disappointed in some respects, and for some time we’ve said we stand ready to buy Japan, but that the time wasn’t yet right.

The Basic Energy Plan

Abe recently publicized his administration’s “Basic Energy Plan,”. Like Germany, which is also facing massive energy cost increases as a result of its “energy revolution,” the Japanese are discovering that economic reality requires nuclear energy. The new “Basic Energy Plan” says explicitly that nuclear power will remain a critical baseload electricity source.

And it does not place any numbers on the future proportion of nuclear electricity supply. Notably, a recent local election in Japan saw an ally of Abe’s win the governorship of Yamaguchi prefecture. He had campaigned against two anti-nuclear activists who wanted to ensure that plans for a new reactor in the prefecture didn’t go forward. This shows that public sentiment is not as anti-nuclear as some have suggested.


There are still hurdles to overcome, since in order to be restarted, each plant must be approved by local authorities. But if this move can eventually undo some of the harsh effects of skyrocketing energy imports, it will give that much more fuel to real Japanese growth.

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