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).
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.