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TOKYO (Reuters) – At first glance, business at Miwa Amauchi's precision metal-parts factory near Tokyo appears normal. A laser beam carves through metal sheets while nearby a worker, cigarettehanging from his lips, makes small adjustments to a machine press bending delicate steel components.

Upstairs in her sparse office, however, Amauchi frets about the firm's future after an earthquake andtsunami on March 11 knocked out a big portion of the electricity supply to the Tokyo area, leavingmillions to cope with rolling power blackouts.

"Compared to the suffering that people in disaster-hit areas are going through, what we have to bear istiny so I don't want to complain," Amauchi, who manages sales, told Reuters. "But if this drags on for ayear the company could be in trouble."

Indeed, analysts suggest power blackouts will ultimately cause the biggest economic damage to Japan,a vital player in the global manufacturing supply chain.

The Tokyo area and regions further north make up half of the economic activity for the world's third- biggest economy, Nomura Holdings estimates.

With Japan heading toward summer, when power demand tends to peak as air conditioners are used tocombat rising temperatures, the power crunch could get worse.

That threatens to idle expensive machinery at the Amauchi family firm, founded 53 years ago, andleave its 26 workers with nothing to do.

The quake and tsunami left 28,000 people dead or missing. Direct damage from the twin calamity alonecould be as high as $300 billion, making it the world's costliest natural disaster.

The quake and tsunami also crippled the Fukushima nuclear power plant, 240 km (150 miles) north of Tokyo, triggering radiation leaks that officials say could take months to stop.

IMPACT

Tokyo Electric Power Co (TEPCO), which runs the plant, lost 23 percent of its generating capacity inthe disaster. Officials have conceded that most, if not all, of the six reactors at the plant will have to be

decommissioned.TEPCO and Tohoku Electric Power Co Inc, which supplies northern Japan and because of the disaster is experiencing a similar dearth of power supply, cannot rely on other power grids in Japan for support.

A legacy dating back to World War II means the two sides of Japan's main island operate different power frequencies, making their generators incompatible.

It would take years to build bridges between the two systems, so the government is consideringallowing companies to coordinate on their plant operating hours, which may require some speedychanges to antimonopoly laws.

The Amauchi family firm is one of thousands that have to juggle rolling blackouts imposed by TEPCOto prevent a collapse of its power grid as households and businesses suck more power than the utility --Asia's largest -- has to give.

The electricity deficit in Tokyo and the north could be around 10 percent, which would knock around 5 percent off recurring profits of companies listed on NOMURA's 400 index, which includes all Japan's blue chips such as Toyota Motor Corp and Sony Corp.

"If you look at it simply, this would take away 3 percentage points off industrial output over the courseof a year," said Nomura strategist Ryota Sakagami.

Indeed, some analysts are predicting that economic activity as a whole in Japan will contract during the

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first and second quarters. The affects of the power crisis underline the subdued nature of the economy.

Half the street lights in Tokyo are turned off, offices are dimly lit and stores, while open, servecustomers in semi darkness. Commuter lines are running fewer trains and escalators have been turnedoff.

Even the traditionally bustling Tokyo district of Ginza -- normally bursting with neon lights andshoppers rushing from one store to the next -- is literally a shadow of its former self.

GLOBAL SUPPLY CHAIN FEELS IMPACT

To cope with a schedule of three-hour blackouts, Amauchi has asked her workers, who fabricate metal parts used to build cash dispensers and electronic ticket gates used at airports and other facilities, tocome in earlier or stay longer than their usual 9 a.m.-5 p.m. shifts.

Amauchi says she feels more fortunate than managers at other firms.

"Our machines don't require a long boot-up time like some others, which can take up to half a day, sowe are lucky in that perspective," she said.

Hit hardest are chip makers and other electronic component builders. Once their sensitive machines

power down, it can take days to bring lines back up. On the first working day after the disaster, pricesfor NAND flash memory chips, used in mobile devices, jumped 20 percent.

Recognizing how integrated Japan is into the world's economy, global supply chains shuddered withindays of the earthquake.

Carmakers and telecoms firms globally warned their businesses could be impacted. Even mining giantRio Tinto said its expansion plans could be in jeopardy.

Honda Motor Co said last week production cuts at its plants in the United States and Canada would lastat least until the middle of April. It warned output could still be disrupted after that date because of uncertainty about supplies of spare parts from Japan.

"A crucial difference for previous earthquakes is the large-scale power outages and supply chaindisruptions caused by the crippled nuclear power plant," said Naohiko Baba, chief economist atGoldman Sachs in Tokyo. "We assume that power outages will depress production throughout 2011."

Indeed, economists forecast that industrial production could fall in March as much as 10 percent on acombination of supply shocks, factory shutdowns and lost power. That's roughly four times bigger thanthe fall seen after the Kobe earthquake in 1995.

Amauchi voices the concern being felt at firms around the region of the damage that will do to their prospects.

"If the blackouts continue, it's obvious production will fall. This could give other companies, like thosein China, a boost."

SHARED CONCERNIt's that shared concern that is bringing companies together to consider ways to cooperate to keep their

plants running.

Business groups, including the influential Japan Business Federation (Keidanren), are consulting withmembers on a coping strategy that includes using power generators or implementing self-imposedtargets to deal with the power cuts.

"The government is working to avert blackouts and we need to come up with a plan that goes with it," aKeidanren official quoted chairman Hiromasa Yonekura as saying on Thursday after a task force

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created to draft an action plan met for the first time.

The business lobby has even told the government it is willing to forego a planned 5 percentage pointcut in corporate tax, which at 40 percent is among the highest in the industrial world, to help theindebted government pay for disaster relief.

It has urged members to consider shifting production to western Japan, which was not affected by theearthquake.

The Semiconductor Equipment Association of Japan, after speaking to its group members, submitted arecommendation to the trade ministry for self-imposed 30 percent cut in power supplies for factories

based in the greater Tokyo area.

"We understand electricity use must be reduced, but we want to have some control of how it is done,rather than be subjected to scheduled black-outs," said Masamori Ozawa, an official with the industrygroup at the action committee's first meeting aimed at drafting an action plan.

In addition to industry groups, the government is considering the reintroduction of daylight saving,which Japan briefly adopted during the U.S. occupation after World War II. [ID:nL3E7EQ00I]

It might also raise prices for peak-time power use to try to balance out supply and demand, a tradeministry official, who declined to be identified, said last week.TEPCO estimates it can squeeze 54 gigawatts of supply out of its network by summer, up from around35 gigawatts now, by rushing repairs on damaged thermal plants and by plugging mothballed power stations back into the grid.

But that will still fall short of the 60 gigawatts of power typically demanded during the summer peak months.

That means more rolling blackouts that will force Amauchi and other corporate executives to findlonger-term solutions.

ON YOUR OWN?

Konica Minolta, a maker of printers and high-tech components, said that like Amauchi's company itwas adjusting workers' shifts to deal with the power disruption. It is also increasing use of its own

power generators and is lobbying officials to adjust the blackout schedule to enable them to getuninterrupted power for longer periods of time.

"Based on the assumption a cap on total usage will be implemented from summer to balance out supplyand demand, I believe companies will need to come up with a plan to meet its target based on lastyear's peak usage and the expected cut rate," CEO Masatoshi Matsuzaki told Reuters in an email.

The government has so far been preoccupied with disaster relief and containing the nuclear crisis atTEPCO's Fukushima Daiichi power plant, so has found little time to consider how it will pay for reconstruction let alone manage the shortage of power supply, adding to the uncertainty for company

managers like Amauchi."Japan is facing a real crisis today but I'm sceptical the government can help each and everyoneaffected. We're going to have to deal with this ourselves," she concluded as the dull pounding andgrinding sound of her family's factory filtered through the walls.

(Additional reporting by James Topham and Isabel Reynolds in Tokyo; Editing by Tim Kelly and NeilFullick)