The Japanese economy has been much maligned over the past decade and the March 11th earthquake and tsunami in Northern Japan and related nuclear power crisis had many analysts fearful that the economy would take many years to fully recover. Yet the Japanese economy is already showing its first signs of recovery. The reason: maybe Japan’s economy was misunderstood and there was more than meets the eye.By George Lauriat, Editor-in-Chief, AJOTPost-Apocalypse. Last week, Japan’s Cabinet Office, in its monthly economic report, issued its first upbeat assessment of the economy since the disastrous March 11th earthquake and tsunami. The Cabinet Office’s in the June statement said, “Upward movements are observed in the Japanese economy, while difficulties continue to prevail, due to the Great East Japan Earthquake.” The report also noted that industrial production and exports showed some upward movements and that the Japanese economy is in a mild “deflationary phase”. Earthquakes and their economic impact are nothing new to Japan. In 1995, the 6.9 (on the Richter scale) Kobe earthquake, cost an estimated $132 billion in economic damage, at the time touted as the world’s most financially costly natural disaster. The Kobe earthquake also coincided with an economic downturn in Japan, sometimes called the lost decade 1990-2000 or lost decades 1990-2010. How much the Kobe earthquake contributed to the country’s economic woes is still debated. However, two years later the Asian Financial crisis struck, and Japan’s economic performance like other Asian economies (with the exception of China) dipped as financial markets crumpled. The problem was that Japan, the world’s 3rd largest economy never seemed to recover while other Asian economies returned to their former high growth rates. Japan, as an export economy seem to run out of steam, as industrial production slowed – the country’s economy began behaving like the “old man of Asia” all the while upstarts like Malaysia, Singapore, Indonesia, Vietnam raced ahead. In the ensuing years, neighboring China became the economic focus, not only in Asia but globally. The cost of “3/11”, as the Japanese have dubbed the Sendai earthquake, is estimated at over $300 billion, with the cost to insurance companies alone ranging upwards to $35 million. It’s estimated that the disaster could amount to 5% of the GDP, easily making it the largest disaster in Japan’s modern history. The immediate economic impact was severe reduction in industrial production, leading to a curtailing of exports and increasing imports. With nuclear power severely cutback following the disaster, Japan’s electric output was cutback. With much of the nation’s nuclear electrical generation offline, Japan, which is already the world’s 3rd largest oil importer, will be even more dependent on imported hydrocarbons. The combination of economic fallout from the Sendai earthquake would appear to be a recipe for long-term industrial malaise. The country’s GDP for the first quarter (Jan.-March) was -3.5 and analysts at IHI Global Insight are predicting a real GDP growth could decline by .2% to .5% for the year due to the earthquake’s economic impact. So why is Japan’s economy apparently climbing out from underneath the financial rubble of the disaster faster than initially anticipated? Third Lens In June, Masaaki Shirakawa, Governor of the Bank of Japan, gave a speech entitled “Bubbles, Demographic Change and Natural Disasters” at the 2011 Annual International Conference hosted by the Institute for Monetary and Economic Studies, the Bank of Japan. As the title implied, Shirakawa linked the economic impact of the financial “bubbles” and apocalyptic events, such as the March 11th earthquake and tsunami, to the traditional macroeconomic models. Shirakawa, notes in his speech that economists and policy makers analyze macroeconomics through “two lenses, trend growth and business cycles,” which while important there is need to incorporate a “third lens” to take into account rare