Japan has been hit by a double-whammy: the global fall in trade, made worse by its (formerly) rising yen.
While deteriorating conditions in China generally get more media attention, the falloff in Japan is stunning and serious. Japan has spent more than a decade stagnant, but the overall growth figures mask the fact that the domestic economy contracted, while the export sector exhibited good growth.
The export plunge (December’s results horrid too, a 35% fall in exports), means that Japan’s only engine of growth has gone into stall. China, by contrast, is not as dependent of trade for its overall performance as is popularly believed (commercial real estate and infrastructure spending have also been important sources, although CRE has taken a dive too).
The fact that Japan is now running trade deficits also means they will not be accumulating foreign exchange reserves, specifically buying Treasuries (Japan could still buy Treasuries to lower the value of its currency, but the terrible economic news has already put the yen on a downward path).
From Bloomberg:
Japan’s exports plunged 45.7 percent in January, resulting in a record trade deficit, as recessions in the U.S. and Europe smothered demand for the country’s cars and electronics…Gross domestic product shrank at an annual 12.7 percent pace last quarter, the most since the 1974 oil shock, and economists predict the slump will drag into this quarter. Toyota Motor Corp., Sony Corp. and Hitachi Ltd. — all of which forecast losses — are firing thousands of workers, heightening the risk the recession will deepen.
“The drop in exports is unbelievably bad,” said Yasuhide Yajima, a senior economist at NLI Research Institute in Tokyo. “The pressure on companies to cut jobs and investment is rising and that will make the recession deep and protracted.”…
Japan’s economy, the world’s second largest, may shrink a record 4 percent in the year starting April 1, faster than this year’s projected decline of 2.9 percent, according to the median estimate of 15 economists surveyed by Bloomberg News. The worst contraction to date was fiscal 1998’s 1.5 percent drop.
Capricorn 
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Hey everyone. I think I figured out a way for us to sue the Fed and Treasury to challenge the legality of their alphabet soup of lending facilities.
Governmental agencies are required by law to give the public a notice and comment period BEFORE issuing regulatory rules. This is required under the Administrative Procedure Act, Section 553.
If you review Treasury’s and the Fed’s creation of their alphabet soup of lending facilities to help the big 6 banks and GS and MS, the Fed and Treasury mostly have been creating the programs through announcements. They have not been issuing a notice in the federal register (the official publication of regulations) with notice period for interested parties to submit comments and then participate in a hearing.
This may mean that the various programs are ILLEGAL due to violating the APA.
I am not an expert so I don’t know if private citizens can sue to void agency actions that violate the APA. However, most certainly community banks and credit unions that have been screwed over by the Fed and Treasury’s assistance to their competitors would have standing to sue the Fed and Treasury to overturn their assistance to the major banks.
Spread the word to the credit unions and community banks and civil rights groups like the american civil liberties union. Hopefully, Bernanke/Paulson/Geithner slipped up and violated the APA, and we can get the courts to overturn their programs as ILLEGAL actions.
Also, if the Fed and Treasury does start having notice and comment periods, we should start showing up at the hearings to protest. The Fed’s and Treasury’s actions as promoting systematic risk by encouraging corruption, incompetence, and reckless speculation.