Japan is the world's third-largest economy and a huge exporter of cars, electronic components and industrial equipment as well as steel, textiles and processed foods. In turn, it's a voracious consumer of petroleum, imported agricultural products and luxury consumer goods.
Since the earthquake struck last Friday, many of the nation's largest manufacturers, including automaker Toyota Motor Corp. and electronics maker Toshiba Corp., have been forced to slow or shut down production as they deal with supply chain interruptions, energy shortages and transportation problems.
And while many of those idled plants are expected to come back online soon, questions loom about the lasting effect on the Japanese economy as the country struggles to rebuild. The reconstruction costs could well surpass $100 billion, according to some estimates.
Already burdened with persistent deflation, shrinking foreign investment and massive borrowing, Japan's economy now faces what could be far darker clouds as it struggles to take measure of the destruction in its northeastern coast. Almost certainly, Japan will be forced to borrow more money, which could drive up the value of the yen, making it harder to export products.
Japan "is starting from a lousy fiscal position," said Marcus Noland, senior fellow at the Peterson Institute and an expert on Asian economics.
"If this can be contained, the economic implications may not be long term," Noland said. He compared the situation to the 1995 quake in Kobe, Japan, which struck a far more industrialized zone but carried less of a risk of nationwide disruption because utilities were relatively unaffected. "If not, then it could have implications not only for Japan, but for the global economy."
The pace of recovery may hinge on the country's energy supply. Japan's manufacturing is electricity-intensive, and the country gets about 30% of its power from nuclear plants, although it also relies on fossil fuels.
Because of the disaster, about a fifth of the nation's nuclear plants are off-line. New data from Platts, an energy information company, on Monday indicates that 31% of Japan's refining capacity has been reduced or shut down. Utilities are enforcing rolling blackouts to deal with the supply problem, at least temporarily.
Noland said that if there was a permanent reduction in national capacity, the economic effect could be severe. "It all comes down to the electrical grid," he said.
Toyota, the world's largest automaker and Japan's biggest company, has halted all production in Japan, including its hybrid Prius vehicle, through Wednesday, representing 45% of its worldwide supply. Automakers Nissan, Mitsubishi, Mazda, Subaru and Suzuki have also temporarily shut down their plants to help conserve electricity.
Honda Motor Co., Japan's fourth-largest company, has shuttered several of its plants, including one in Suzuka, where it produces many of its hybrid vehicles, a painful product to lose as worldwide gasoline prices soar and demand for fuel-efficient vehicles rises. Also, two Toyota plants in the disaster-struck Sendai region produce some of the automaker's more fuel-efficient offerings, including the Yaris subcompact.
Nissan Motor Co. said it lost almost 2,300 vehicles awaiting shipment at an eastern port that were destroyed by the tsunami.
Shares in the Japanese auto sector traded down heavily Monday, with Toyota falling 8% and Nissan down nearly 10% in trading on the Tokyo Stock Exchange.
Although those production setbacks might seem like an opportunity for ambitious foreign competitors such as South Korea's Hyundai, Germany's Volkswagen and a resurgent Ford Motor Co., Rebecca Lindland of IHS Global Insight notes that most Japanese automakers today produce vehicles in the countries where they sell them. According to Honda, for example, 80% of the vehicles it sells in the U.S. are built here.
Moreover, Lindland said, disruptions at Japan's automotive suppliers could hurt brands from all over the world. That's because carmakers depend on complex global supply chains, and even Chevrolets built in Michigan use Japanese components.
"Nobody works in isolation these days," Lindland said. "All it takes is one missing part. If you're missing something as simple as the cup holder, you aren't selling that car."