In the aftermath of the earthquake, production has declined very sharply due to supply constraints caused primarily by the destruction of capital stock, disruptions in supply chains and a shortage of electric power (Slide 1). As a result, exports have decreased substantially, and domestic private demand has also been weak, partly accentuated by deterioration in business and household sentiment.
Those constraints are, however, being relaxed more quickly than expected initially as a result of strenuous efforts by firms. Looking ahead, for the time being, Japan’s economy is likely to continue to be under strong downward pressure, mainly on the production side.