Japanese Trade Implosion Continues, Exports Fall 41%

Japan once had robust exports and a de facto two-tier economy. Yet the image of the dreadful domestic economy dominated as Japan has been characterized as having a lost nearly two decades. I’ve long harbored the suspicion that Japan played up the stagnant domestic economy so no one would bust its chops over its booming exports.

Those days are past, finished by the one-two punch of the global downturn and Japan’s strong yen. It is puzzling that the yen continues at these lofty levels, given the dreadful prospects for the economy and the fact that the Bank of Japan has signaled it will intervene if it has to, as it did successfully in 2003. Japanese banks are also not as strong as they are perceived to be. Although they are not mired in crappy structured credit deals, the flip side is their equity bases depend in part on cross shareholdings in other Japanese companies. If the Nikkei falls far enough, the banks are undercapitalized.

Note also the last paragraph of the story, which raises questions about the Chinese recovery.

From Bloomberg (hat tip DoctoRx):

Japan’s exports fell at a faster pace in May, extending the nation’s deepest trade slump since World War II.

Shipments abroad dropped 40.9 percent from a year earlier, more than April’s 39.1 percent decline….The median estimate of economists surveyed was for a 39.3 percent decrease. From a month earlier, exports fell 0.3 percent, the first deterioration since February…..

“The question remains: will this be a typical recovery in terms of the magnitude of the rebound?” said David Cohen, director of Asian economic forecasting at Action Economics in Singapore. “The pessimists say there are still headwinds from lingering financial stress in a lot of places.”….

Bank of Japan Governor Masaaki Shirakawa said this month that, although the recession probably bottomed last quarter, he is “cautious” about the prospects for a sustained recovery…

“With the world economy in recession it’s a tough story for Japan,” said Jan Lambregts, head of financial markets research at Rabobank International in Hong Kong. “The U.S., the euro zone, the rest of Asia have to recover, and then Japan can benefit.”

The World Bank this week downgraded its forecast for global growth, saying the world economy will shrink 2.9 percent this year, worse than the 1.7 contraction predicted in March. Fewer capital inflows and less direct investment will mean “increasingly grave prospects” for developing nations, the lender said…

Nor has China’s recovery been enough to revive earnings for Japan’s exporters. Hitachi Construction said this month that sales in China haven’t improved as much as the company had anticipated. The world market for digging equipment will contract by more than a third in the first half of the business year and rebound by only 6 percent in the second half, according to company President Michijiro Kikawa.

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  1. mxq

    speaking of china…

    WSJ China Blog reported 4q08 annualized growth was supposedly only 0.4% rather than the 6.8% yoy headline growth that was bandied about by the chinese govt.

    i guess six months after the fact, it doesnt matter…

  2. Hugh

    What is happening in Japan is in line with what we knew. It was assumed that depression would hit harder and faster outside the US than inside, for the moment.

    But given the poor, misguided, and wasteful policy responses so far by both the Bush and Obama Administrations I can't help but think that in Japan and Asia we are looking at our future, not that the situations will play out the same way, just that they will be as bad.

  3. Sivaram Velauthapillai

    Japan is facing one of the consequences of manipulating its currency. The Yen was artificially low and this made their economy dependent on exports. Now that the Yen is back to normal levels (it may strengthen further, like the US$, if deflationary forces take hold) a lot of the Japanese exporters will face serious issues. Unfortunately, I think their whole economy needs to be re-structured and that may be painful…

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