In 1995, when an earthquake ravaged the city of Kobe, an important industrial hub in Japan, the country’s government and economy surprised and impressed the world. Within 15 months, economic activity in the area returned to about 98 percent of pre-quake levels, and the cleanup was largely completed within two years. Now Japan’s massive earthquake and tsunami, plus its emergency involving damaged nuclear reactors, have generated headlines around the world and persuaded some that natural disasters have compounded the country’s long-term economic woes, rendering it a spent force on the international stage.

Yet there is little reason to fear that recovery from the recent Tohoku earthquake and tsunami and their aftermath need prove much more difficult or take much longer than the recovery from the disaster in Kobe. As before, the reconstruction effort will stimulate both immediate industrial activity and long-term investment in housing and in commercial and industrial infrastructure. Excess manufacturing capacity will help Japan cope with temporary capacity losses. Moreover, the country’s industrial core lies outside the region most badly damaged by the disasters, so long-term damage will probably be limited. Even credible worst-case scenarios for the Fukushima Daiichi meltdown indicate that it would have little impact on long-term economic recovery. Net government debt hovers above 100 percent of GDP, but other countries have managed with even heavier burdens. The Bank of Japan will ensure that adequate funding is available to financial institutions to finance recovery efforts, both public and private.