Japanese industry appears to be overcoming the initial disruption caused by the earthquake. Industrial production started to recover in April and is expected to rebound through May and June. The labour market, however, is only just starting to feel the negative effects of the disaster, which will push the unemployment rate significantly higher. The latest warning on Japan’s dire fiscal position from Moody’s is also a timely reminder that the economy as a whole will be held back by the tax increases and cuts in other expenditure required to help pay for the government’s share of reconstruction spending.