Restart of Japanese Nuclear Plants: Fukushima Vegetables, A Weaker Yen Unlikely To Help With Japan's Trade Deficit

 @moranzhang on July 17 2013 5:33 AM

Japan, a resource-poor nation, has relied on nuclear power for energy diversification and security since the 1970s. The country’s imports of fossil fuels have risen considerably since the Fukushima Daiichi nuclear plant melted down in March 2011, which led to the eventual shutdown of all but two of the country’s 54 reactors.

Prior to the tsunami, nuclear power generated almost 30 percent of Japan’s electricity production. Now, with only two reactors still operating, this share has fallen to 3 percent. The high cost of continued fuel imports runs counter to Prime Minister Shinzo Abe’s plans to restore economic growth.

Japan, the world’s biggest importer of liquefied natural gas, is running a trade deficit as energy imports ramped up. The country racked up a ¥993.9 billion ($10.42 billion) trade deficit in May, compared with a ¥907.9 billion deficit in the same month of the previous year, the latest Ministry of Finance data showed. The officials attributed the deficit – the third-largest on record – to sharply higher imports of petroleum products and communications devices.

Power utilities in Japan increased liquefied natural gas imports by 18 percent year-on-year in 2011 and by 5 percent year-on-year in 2012, and according to BP's 2013 Statistical Review of World Energy. The Japanese government is reviewing applications to restart a total of 10 nuclear reactors under new safety regulations, with a resumption of electricity generation possible from the beginning of next year.

However, analysts believe that even if the pro-nuclear Abe administration brings idle reactors back online, “a partial resumption of nuclear energy generation is unlikely to reduce Japan’s trade deficit meaningfully,” Marcel Thieliant and Julian Jessop of Capital Economics said.

The yen’s new weakness, which makes Japanese goods cheaper abroad but at the same time makes foreign products more expensive to import, also plays a part in the sharp increase in energy import bills.

Thieliant and Jessop noted that Japan’s energy imports have increased ¥5,300 trillion on an annualized basis since February 2011, but most of this was due to yen weakness and higher energy prices. If these factors are kept constant, energy imports have only gone up by around ¥1,700 trillion annualized. This compares to an overall trade deficit of ¥8,700 trillion in the 12 months to May 2013.

But with no more than 10 reactors likely to resume production by early next year, the reduction in energy imports may only be around ¥350 trillion, or 4 percent of the overall trade deficit.

Electricity prices in Japan had been roughly stable before the earthquake, apart from a brief spike in early 2009 in the wake of the previous year’s surge in the crude oil price. But they have risen by around 25 percent since early 2011. Even if prices were to fall back slightly from current levels, electricity would still be expensive compared to prices in other countries.

"Clearly the increased reliance on fuels and the lower level of electricity production are the main drivers behind this price increase,” Thieliant and Jessop said. “While a resumption of nuclear energy generation may reduce electricity prices somewhat, this may well be offset by a further weakening of the exchange rate.”

It also remains to be seen how Japan’s people will react to a potential restart of the plants, as problems continue to plague the Fukushima nuclear plant. According to a recent poll, 51 percent of Japanese oppose the resumption of nuclear energy and, as recently as June, 60,000 people gathered in Tokyo to protest against it.

The head of the Nuclear Regulation Authority, Shunichi Tanaka, announced on July 10 that an ongoing radioactive leak was “strongly suspected” at the site.

Fukushima's operator, Tokyo Electric Power Co. Incorporated (TYO: 9501), has acknowledged problems are mounting at the plant north of Tokyo, the site of the world's worst atomic disaster since Chernobyl in 1986. The operator has reported spikes in the amounts of radioactive cesium, tritium and strontium detected in groundwater at the plant, adding urgency to the task of sealing any leaks. Radioactive cesium and strontium, especially, are known to raise risks of cancer in humans.

Moreover, photos of what looked like malformed vegetables from Fukushima have surfaced on Imgur, a popular photo-sharing site that's a favorite among Reddit's user base.

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“While the government should have a freer hand if it wins the Upper House elections on Sunday, as we expect, it can’t ignore popular opinion altogether. Any restart of the power stations is therefore likely to be a slow process,” Thieliant and Jessop said.

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