Japanese Economy Shrinks at Nearly 13% Annual Rate in Q4: No Relief in Sight « naked capitalism

Monday, February 16, 2009

Japanese Economy Shrinks at Nearly 13% Annual Rate in Q4: No Relief in Sight

Japan has long had a two-tier economy: a robust export sector and a comatose domestic economy. With the yen at a high level and trade volumes generally falling, the export sector has gone spectacularly into reverse gear, taking overall growth with it.

From Bloomberg:

Japan’s economy shrank at an annual 12.7 percent pace last quarter, the most since the 1974 oil shock, amid an unprecedented collapse in exports and production.

Gross domestic product fell for a third straight quarter in the three months ended Dec. 31…

Exports plunged a record 13.9 percent from the third quarter as global demand for Corolla cars and Bravia televisions evaporated….

“The economy is in terrible shape and the scary part is that we’re likely to see a similar drop this quarter,” said Seiji Adachi, a senior economist at Deutsche Securities Inc. in Tokyo….

The world’s second-largest economy shrank 3.3 percent from the third quarter, today’s report showed. That compared with the U.S.’s 1 percent contraction and the euro-zone’s 1.5 percent decline. Economists predicted a 3.1 percent drop.

Japan’s economy shrank in the last quarter by its most since the first oil crisis in 1974, hit by an unprecedented slump in exports, which is likely to lead to more calls for extra stimulus steps to fight the deepening recession.

Japan has not suffered much directly from the burst of bubbles in the U.S. credit and housing markets, but its heavy dependence on exports in the face of soft domestic consumption has led to a sharper contraction than most other rich countries….

With exporters cutting production and laying off staff and many retailers reporting sharp falls in sales, economists saw little hope of a bounce back for Japan.

27 Comments:

Anonymous says:

February 15, 2009 at 9:26 pm

Japanese Bond Risk Rises to a Record as Economic Woes Deepen
“The credit profile of the Japanese corporate sector has deteriorated quite substantially in the past couple of months, and the situation could get worse even though companies are trying to cut costs,” said Yasunobu Katsuki, chief credit strategist for Japan at Mizuho Securities Co. in Tokyo.

bg says:

February 15, 2009 at 9:46 pm

Japan’s auto industry makes up a little less than 10% of the countries GDP, and we know car exports to the US were off 30%+ in Q4. I cannot extrapolate US exports to the entire auto-industry, but suffice it to say I was expecting a greater GDP drop for Japan.

60% of their economy is from consumers, and they do not have the debt load ours do, so perhaps their consumers are doing much better than ours.

JP says:

February 15, 2009 at 9:54 pm

The scariest line: “The economy is in terrible shape and the scary part is that we’re likely to see a similar drop this quarter,” said Seiji Adachi, a senior economist at Deutsche Securities Inc. in Tokyo….

That’s about a 6% contraction in six months.
Wow.
Batten down the hatches.

Bernanke-san says:

February 15, 2009 at 9:56 pm

America is not Japan – (they had savings)

Anonymous says:

February 15, 2009 at 10:04 pm

and on that news about Japan

21:30

NIKKEI 225

Value 7,763.03 Chge (-16) (-0.21%)

alexblack says:

February 15, 2009 at 10:19 pm

To paraphrase the famous Japanese Zen koan, what is the sound of one shoe dropping?

David says:

February 15, 2009 at 10:31 pm

“Japan has long had a two-tier economy: a robust export sector and a comatose domestic economy.”

I have been to Japan and they seem even more consumerist than Americans. So I don’t understand why their domestic economy is comatose. I mean, when I went there I couldn’t even afford the sushi. I had to eat those noodle bowls all the time.

WalrusBank says:

February 15, 2009 at 10:43 pm

Warren Buffett on Hyperinflation:

http://changealley.blogspot.com/2009/02/buffett-on-hyperinflation.html

…

Anonymous says:

February 15, 2009 at 10:57 pm

OT

can we have a thread about prezdnt nitwit’s new plan for the autos

Anonymous says:

February 15, 2009 at 11:23 pm

We live in Tokyo and are currently in the process of selling our current home and purchasing a larger, more comfortable residence in the same area. The key issue is regional disparity. Those living outside major urban centers are getting killed, almost literally. Factories have closed, jobs have disappeared and local economies have collapsed. The good news is that Japan, Singapore, Korea, Thailand, Taiwan, and Malaysia are not looking to the US for solutions, but are attempting to retool manufacturing, trade, and price structures to spur regional trade and consumption. China will continue to prop the US economy for the time being. All Asian exporters to Europe and the US are in for a rough ride, but will likely adjust as long as protectionism does not take hold. In terms of the local population, the crunch will hit those lowest on the totem pole hardest.

K T Cat says:

February 15, 2009 at 11:32 pm

I blame Bush.

Advant Guard says:

February 16, 2009 at 12:07 am

The personal consumption in Japan is low because wages are held down and consumers have little access to credit while corporations have easy access to credit and have enormous pricing power. Japanese companies tend to have large revenues but slim profits, because profits don’t matter as much as market share.

By the way, the first quarter may be much worse than the fourth quarter, exports only began dropping big time in December, if there is no pick up from January trade figures, the first quarter could be horrendous.

Yves Smith says:

February 16, 2009 at 12:24 am

David,

Restaurants are not a great metric.

Old people are shoplifitng, this in a society where this is very acultural, because they are out of dough.

Household formation is terrible. Young women (known as “parasite singles”) stay at home with their parents. They can afford a nice lifestyle since they aren’t paying rent. This often persists well into their thirties.

Young people cannot afford cars. That may give an idea of how strained budgets are.

Anonymous says:

February 16, 2009 at 12:46 am

Japan is in a “death spiral” where household formation and demographics are being killed by the high cost of living in Japan and now, economic uncertainty.

Anonymous says:

February 16, 2009 at 1:21 am

In real terms, adjusted for deflation, Japan’s gross domestic product fell 3.3 per cent on the previous quarter, or 12.7 per cent annualised.

The US economy contracted 3.8 per cent in the same quarter and the eurozone economies together shrank by 1.5 per cent

Looks like European ability to produce and consume what they produce makes some sense…

Anonymous says:

February 16, 2009 at 1:42 am

Yves,

I enjoy your blog very much, but I have to take issue with your characterization of family formation and consumption habits. Yes, the general rule is: don’t get married and start a family if you can’t afford it. That said, there are really two or three generally solid economies operating at different scales: an affluent elite earning 10 million yen or more per year, the national middle-class average earning 6, and a growing number of folks earning around 3 million per year. New cars can be purchased for just over 1 million yen and financed easily at extremely low rates. The ‘parasite singles’ you describe have, in many cases, moved back home after living independently.

This group has been conflated with ‘freeters’, part-time or contract workers who do not pay into the national pension system or health plans at the same rates as the rest of us.

Many of the part-time and contract workers lost their jobs in the recent round of lay-offs, particularly in the country. Scandal stories of old-people shop-lifting do not reflect a reality that is, in many cases, considerably grimmer. Older people are sometimes beaten inside multi-generational homes. Sadly, there’s nothing new about that.

Prime-Minister Aso enjoys a 14% approval rating. Mr. Fukuda, who preceded him, walked off the job two weeks after presenting a budget.

The crisis facing Japan is real, as is frustration with the government. Consumption rates are certain to be lower than in the past. The major problem is un-employment, however, which is going to balloon in March when the majority of contract workers discover their contracts will not be renewed and there are no new jobs.

FairEconomist says:

February 16, 2009 at 2:17 am

Yves, a lot of the decline in cars in Japan is that young people just don’t want them. In a very dense, highly urbanized environment with a lot of older neighborhoods that have streets not designed for cars, they don’t make all that much sense. And perhaps there’s a new attitude in Japan:

“I don’t believe that having more things enriches you,” Makino said in a recent interview at his apartment, sitting among shelves of wooden crates. “If you stay happy in your soul then you can be happy without money.”

ndk says:

February 16, 2009 at 2:26 am

an affluent elite earning 10 million yen or more per year, the national middle-class average earning 6, and a growing number of folks earning around 3 million per year.

The number you cite for the middle-class average is double the median wage recorded officially.

I hope the general social mood prevailing in Japan isn’t a harbinger of that to come in the rest of the world. It really doesn’t feel great. I’m still very excited about getting a chance to go back and see my friends at the National Institute, though. Categorically wonderful folks.

Anonymous says:

February 16, 2009 at 3:07 am

ndk writes…[...] Quite right, and we live in Tokyo. The article you cite points to the key indicator, the rising disparity in income between regions over the last three years irrespective of other factors. Rents, land values, and wages are regionally adjusted down, but that hasn’t helped those who lost their jobs in the last rounds of cuts, as you also likely know. The problem, as I understand it, is that very few folks believe that the national government can continue to pump cash into these job poor regions. The downward spiral referred to by Yves and others affects has, so far, really hurt those living outside major urban centers. Small factory owners and home owners have been particularly hard hit, especially in terms of equity. That’s not likely to change.

Consumption in Kanto is likely lower than last year, but seems to be fairly steady. People are cautious about big ticket expenditures, but mostly because they expect Mr. Aso to call an election very quickly and for Mr. Ozawa to form the next government. Shops are busy, as are restaurants, race-tracks and pachinko parlors. We visited four new home building sites this morning. Export industries are really feeling the pinch, but I wouldn’t count Japan out just yet.

Our daughter’s school bags and public school uniforms will run something more than 50 thousand yen. Folks here still know how to make money.

I agree, it’s a civilized place to live.

Jojo says:

February 16, 2009 at 4:01 am

@FairEconomist said “And perhaps there’s a new attitude in Japan:

“I don’t believe that having more things enriches you,” Makino said in a recent interview at his apartment, sitting among shelves of wooden crates. “If you stay happy in your soul then you can be happy without money.”

I’d characterize this “new attitude” as people adapting to the reality of their situations. Most everyone would like to have the resources to spend freely and live comfortably. But when you don’t (or no longer) have such resources, you either adapt or become miserable.

Many people in the USA are going to have to do some serious adapting but I think we will find it much more difficult here as we don’t have the strong family bonds nor saving mentality that Japan appears to have.

Here’s a good Japan story from a few months back:
===============================

Japan’s burgeoning class: the working poor
Shino Yuasa, Associated Press
Wednesday, November 5, 2008

(11-05) 04:00 PST Tokyo — In one of the world’s wealthiest nations, Junpei Murasawa is a poor man.

He skips meals to make ends meet. A bachelor, he lives in a tiny apartment in Tokyo, sharing a kitchen, toilet and shower with nine neighbors. He doesn’t have health insurance because he can’t afford the premiums.

The 29-year-old laborer is one of a burgeoning class in Japan – the working poor. The number of Japanese earning less than $19,610 a year soared 40 percent from 2002 to 2006, the latest data available, the government says. They now number more than 10 million.

In a country that boasts the world’s longest-living population, where young women with Louis Vuitton bags crowd the sidewalks, Murasawa’s is a voice of hopelessness and despair – a voice increasingly heard in Japan.

“Every day I live in deep anxiety,” said the soft-spoken temporary worker, currently making $882 a month by bagging purchases at a home improvement center. “When I think about my future, I get sleepless at night.”

….

=================================

ndk says:

February 16, 2009 at 4:02 am

Shops are busy, as are restaurants, race-tracks and pachinko parlors. We visited four new home building sites this morning. Export industries are really feeling the pinch, but I wouldn’t count Japan out just yet.

It’s hard to imagine an empty pachinko parlor in Tokyo, 3:07. Anyone who thinks Japan is stodgy and conservative hasn’t really spent much time there, in my opinion.

I’ve seen little of the other parts of Japan outside of Kyoto and Hokkaido, primarily Sapporo, except from a Shinkansen or Hokutosei window, but I hope to see the countryside up close and personal someday.

Still, the social dynamics of the decay of all regions outside Tokyo must be very stressful. My co-workers mostly had parents from the countryside who were out in aging, decaying towns.

The fellow whose office I shared while I worked there was from Kansai, and he insisted on teaching me as much local slang as possible while I was there. Something about a muscular white guy yelling “Shibai taro ka?!” made him crack up hysterically.

Best co-worker I’ve ever had. Kuso subarashii, Kazu. Glad you’re enjoying life there. I sure did.

Anonymous says:

February 16, 2009 at 4:59 am

ndk writes…[...]

Cheers. I think you’ve hit the nail right on the head, as I think several others have on this thread as well.

The share toilet isn’t exactly the end of the world for a lot of folks used to cento (public baths) and night soil (buckets of human waste).

I think life in the country is going to get very difficult and I haven’t heard anyone offer a single workable solution. Sorry to hear about your friends.

My wife and I met in an Japanese-style home in central west Tokyo with no hot water converted to a student dormitory. She’s from west Japan and tough as nails. We lived with Chinese and Malaysian students who were similarly frugal.

That was a while ago, but we haven’t lost our love of the simple life, good company, and pinching pennies.

Earlier today I was trying to think of the best way to describe life here: in Japan all work is honorable.

I don’t know if this fits with your experience. Cheers.

Anonymous says:

February 16, 2009 at 6:00 am

Japan Enters depression could be the title for this news item yet what are we to make of the fact that the dollar fell against the yen as a result. Surely this would make the problems for Japan even greater, then again perhaps there is good news in the details of the results. Here are a few of the details that some have skipped over.

Consumer spending, which accounts for about 55 percent of Japan’s GDP, saw a 0.4 percent quarter-on-quarter fall in real terms. Corporate capital spending, a main driver of Japan’s six-year economic recovery since 2002, dropped 5.3 percent. While exports tumbled 13.9 percent, imports expanded 2.9 percent.

From this you could argue that consumption in Japan is not falling off as it is elsewhere and the rise in imports shows demand and exports are expected to pick up as stock piled inventory has been exhausted. I guess forex traders and investors will probably view this that way.

Personally I see far more worrying signs in the data. The lack of drop in consumption shows savings are now being depleted. The rise in imports could reflect a trading down to cheaper imports. Quite clearly though Japan is coming off the list of countries who are likely to buy US debt and I think this is reflected in the currency change. With Japan’s representative not feeling too well at the recent G7 meeting there may be signs of political upheaval to contend with as well. Once that happens then I would not be surprised to see Japan trying to devalue its currency and export its unemployment to the US.

Anonymous says:

February 16, 2009 at 9:26 am

Anonymous writes…[...] Thanks for the suggestion that Japan may devalue the yen. Sure enough, the Economic Times out of Mumbai, Fri 2/13, is saying something similar. There’s no question there will be an election before September, perhaps much sooner.

Unfortunately, neither the former or current occupant of the White House is held in particularly high regard in Japan. They think even less of their own leaders.

The folks I talk to hope to see the US make a real commitment to nuclear power and allow some of the big companies to bid on the work. They’ve made no bones about how little they think of US stimulus efforts to date. We’ll see.
We’ll see.

ndk says:

February 16, 2009 at 12:35 pm

Sad news just came in today from one of my dearest friends at the National Institute. I’ll put it in her own words, as her bad English is far more expressive than my good English.

Japan changed really indeed…

My contract is an end on 31 days March.
I heard it today.
I am surprised a little.
We met in NII.
And and being able to meet in NII is the last.
It is a little sentimental.
However, the separation leads to the following reproduction.
Other contracts in the future tomorrow are scheduled to be discussed.
Japan changed really.

I think that the contract of the Yuri is perhaps safe.
I informed the Yuri of it with mail.
When it becomes impossible to meet, it is lonely.

However, I am safe.
Because work to do is found by another.
And, it will look for a better condition.
I do not want to see people who worry about me.
It is a little sad.
I love smile and smile seeing.
A lot of people will graduate from NII in March.
I hope for a happy farewell party.

Anonymous says:

February 16, 2009 at 6:56 pm

However, I am safe.
Because work to do is found by another.

Anonymous says:

February 16, 2009 at 7:52 pm

ndk and anonymous write…[...]

Bad news drives the point home. I’m extremely sorry to hear your friend will be on the block this time round.

Thank you. She’s in excellent company, in many cases, although that can’t be much consolation at this point.

The good news, if we can call it that, is that many are well-aware of the scale of the post-war efforts to get Japan up and running again. Again, the emphasis on individual security as part of the collective whole.

It’s a stunningly beautiful morning here in Tokyo.

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