Nomura sees Japan coming out stronger from crisis

Discounting the worry that Japan's parlous fiscal situation doesn't give it the leeway to expand fiscal policy, he said there is a world of difference between Japan and the government of Japan.

The latter has a debt problem, the former does not as it is a large net creditor to the rest of the world, a status that is bolstered each year it continues to run a big current account surplus.

He further said the Bank of Japan, which until Monday had hardly expanded its balance sheet since the 2008 global economic downturn, has unlimited capacity to do so by buying government bonds and other assets, financed by creating excess reserves. It has already pumped in a whopping USD 187 billion to soothe markets.

Third, Japan has suffered from a brand image problem in recent years and has been subject to what Japanese call Japan passing (ignoring) against the earlier Japan bashing. Now it is in the world''s limelight, and has its abundant sympathy, he noted.

On the impact on GDP, Sheard said the levels and rates of growth need to be distinguished. Typically, potential output falls, as does the current or next quarter growth rate, relative to what it would otherwise have been, but higher growth rates are recorded later on due to the rising demand.

"Our Japan team expects the disaster to shave 0.4% off the 2011 real GDP growth (we now expect 0.9%) but will add 0.3% to 2012 growth which is pegged at 2.5%."

"Japan has the resources to overcome this challenge and emerge even stronger. Through history, it has always displayed that. Japan has an opportunity to press the reset button on its image and even its place in the world," Sheard observed.