People walk in front of an electronic board displaying the 12-month movement of the U.S. dollar rate against the yen on February 25, 2009 in Tokyo, Japan. The Nikkei Stock Average, which has rebounded on the back of Federal Reserve Chairman Ben Bernanke's economic assessment, closed up 192.66 points, or 2.65 percent, to 7461.22 while the U.S. dollar rose above the 97 yen for the first time since late November.
The earthquake and tsunami that struck Japan on Friday forced multinational companies to close factories, fight fires and move workers, inflicting at least short-term damage on the Japan's fragile economy.
Assessing the full economic impact was impossible in the hours after the quake. But traffic clogged streets, trains stopped, flights were grounded and phone service was disrupted or cut off. U.S. companies DuPont and Procter & Gamble said communications problems made it hard to gauge the effect on their operations in Japan.
Japanese stocks plunged. The benchmark Nikkei index fell 1.7 percent, and the Japanese market was only open for about 15 minutes after the quake.
Still, the damage to Japan's economy, the world's third-largest, wasn't nearly as severe as it might have been. The devastated northeastern coastal region is far less developed than the Tokyo metro area.
"Something similar hitting Tokyo Bay would have been unimaginable," said Michael Smitka, an economist who specializes in Japan at Washington and Lee University.
And in the long run, the disaster could help the Japanese economy as reconstruction projects put people back to work.
Natural disasters "do eventually boost output," said David Hensley, an economist at JPMorgan Chase. The 1989 San Francisco earthquake and the 1994 Northridge quake outside Los Angeles, for example, ultimately helped the local California economies, he said.
Takuji Okubo, an analyst at French bank Societe Generale, said Japan's economy will probably take a hit in March and then rebound strongly. Japanese consumers will need to replace lost cars and appliances, and reconstruction will start.
"The earthquake will most likely lead to stronger growth in 2011, rather than weaker," Okubo said.
Okubo noted that industrial production in Japan fell 2.6 percent in January 1995, the month of the devastating earthquake near the city of Kobe. But it rebounded 2.2 percent the following month and 1 percent the month after that.
Overall, Japan's economy grew 1.9 percent that year and 2.6 percent in 1996, Okubo said -- faster than the anemic pace it had been growing. In 1996, private consumption rose at double the rate of an average year between 1995 and 2004.
On Friday, Japanese auto companies halted production at some assembly plants. But it was not clear whether the catastrophe would have a major effect on the global auto industry. Japan's central Aichi prefecture, site of much of the country's auto manufacturing, is far from the disaster zone in northeastern Japan.
Analysts said the damage to production seemed to be limited. But the status of the ports and roads that automakers rely on to move their vehicles remains unclear.
"I don't think in the end it's going to be more than a passing impact," said Ephraim Levy, an auto industry analyst with Standard & Poor's Equity Research. "It would mostly impact Japanese sales, including exports. Some of that may just be deferred rather than lost."
Levy cautioned, though, that it was still hard to assess the damage to Japanese infrastructure.
The Japanese economy has been stagnant for more than a decade. It shrank at a 1.3 percent annual pace in the final three months of 2010. By contrast, the U.S. government estimates the American economy grew at a 2.8 percent annual rate over the same period.
Japan's central bank vowed to do everything necessary to keep financial markets stable, including pumping cash into the financial system.
Toyota Motor Corp., the world's biggest automaker, closed two auto assembly plants. The company operates 15 plants in Japan.
There were no immediate reports of injuries among its workers, spokeswoman Monika Saito said. Parts makers were also shut down, she said.
Honda is closing four plants temporarily. A Honda employee was killed and more than 30 people were injured when walls and parts of a ceiling crumbled at a Honda research facility in northeastern Tochigi prefecture, the company said.
Nissan Motor Co. shut down production at five of its plants in northeastern Japan and in the Yokohama area near Tokyo. It said two workers were slightly injured at its Tochigi plant and its technical center in Kanagawa prefecture, near Tokyo.
For Japanese manufacturers overall, "there will be losses for a couple of months because of disruptions to the supply chain," Smitka says.
Research firm IHS iSuppli said it expects shipments of electronic chips from Japanese factories to be slowed in the next two weeks by the disruption of transportation links. Japan is also a crucial supplier of components for LCD screens, used in TVs, laptop computers and phones.
Some companies had to move their workers to safety. Janie Eudy of Pineville, La., said her husband, Danny, was working at a nuclear plant in Fukushima when the earthquake struck.
After being asked to leave, he called her hours later from the parking lot of his quake-ravaged hotel. He and other American plant workers are "waiting to be rescued, and they're in bad shape," she said in a telephone interview.
Air traffic was disrupted. Seven United flights and two Continental flights from the United States to Tokyo's Narita International Airport were diverted overnight, mostly to other airports in Asia. Delta canceled 29 flights into and out of Tokyo.
Japan is just weeks away from its peak tourism season: late March and early April, when cherry trees blossom, said Alastair Donnelly, co-founder of InsideJapan Tours, a British company that sends more than 5,000 tourists from the United Kingdom, United States, Canada and Australia to Japan each year.
"I encourage people still to travel. Japan will need support from tourism," Donnelly said.
Tourism to the beach communities of Southeast Asia dried up after the 2004 tsunami, devastating the livelihood of the survivors.
"You don't want to make people suffer twice," Donnelly said.
Japan is a big grain and beef importer, but the disaster probably won't hurt the world's food markets significantly, said Darin Newsom, senior analyst at Telvent DTN in Omaha, Neb.
"Certainly it's catastrophic in Japan, but not for the global markets probably," Newsome said.
Japan's government debt is already at alarming levels: 225 percent of economic output, one of the highest figures in the world. Even at a time of heightened concern about the federal deficit, U.S. government debts were just 59 percent of output last year. Japan's debt burden raises questions about Japan's ability to finance a massive rebuilding program.
Dan Ryan, an economist at IHS Global Insight, cautioned that rebuilding will require more government borrowing, which could unsettle bond investors.
But Smitka says he thinks Japan can easily raise the money because its government bonds are held mainly by Japanese investors -- not foreigners who might balk or demand a punitive interest rate.
James Shuck, an insurance industry analyst for the investment bank Jefferies, estimates the insurance industry's losses in Japan at $10 billion. That would make it the costliest Japanese earthquake for insurers ever. By comparison, the Northridge quake cost insurers about $23 billion in today's dollars.
The liability in the Japan quake is limited, Shuck says, because it struck outside a major urban area and because only about 10 percent of Japanese households buy earthquake insurance.