Japan

Early in, early out

Jan 22nd 2009 | TOKYO
From The Economist print edition

An economy not hit directly by the financial storm is shrinking much faster than any other developed one

NO EVENT is seared upon Japan’s recent memory like the bursting of the country’s credit-inflated bubble in land and share prices after 1990. Yet, since the autumn, the speed with which Japan’s industrial output and exports have fallen almost certainly signals a slump of unprecedented severity, making Japan’s several post-bubble recessions look mild. In 1998, the worst year, the economy shrank by 2%. Most economists think it contracted by more than that in the last three months of 2008 alone. Goldman Sachs expects GDP to fall by 3.8% this year.

After six years of growth, the longest uninterrupted post-war run, Japan entered a new recession as early as the second quarter of 2008. But in the final couple of months of the year, what at first was a fairly gentle decline morphed into something far worse than that experienced even by countries at the centre of the credit storm (see chart).

In November the value of exports fell by 27% year on year. The picture only worsened in December with a year-on-year fall of 35%. Recession in the United States was the main cause, with exports there down by 36.9% from a year earlier. In turn, the global slump has also knocked supply chains in Asia, sending Japan’s exports to China down by 35.5% in December, with exports to Asia’s “tigers” (Hong Kong, Singapore, South Korea and Taiwan) falling by even more than those to America.

Exports account for almost half of Japan’s manufacturing output, which as a consequence is seeing its biggest falls since records began: November’s output was down by 13% on a year earlier. Orders for machine tools in December, an early indicator of things to come, were 72% lower than a year before. Hiroshi Shiraishi of BNP Paribas reckons that by December industrial output had already fallen back to its post-bubble low in 2001, wiping out the gains from six years of what had been thought to be a solid recovery. Before the slump is over, Mr Shiraishi expects production to slide back to levels last seen in 1987.

It has not helped that the export demand that drove Japan’s economic recovery after 2002 was narrowly based on cars and consumer technology, industries that have fallen more than most. Carmakers, for instance, are roughly halving production, with consequences for makers of steel, chips and chemicals.

http://www.economist.com/finance/displayStory.cfm?story_id=12998246

Japan's GDP worst since '74

3.3% contraction in fourth quarter translates to 12.7% annual decline as recession batters export-driven economy.

I for one am glad - almost proud, even - to have supported the Japanese economy in Summer 2k6. Or at least the sector centered around Comiket 70 and Akihabara.

The real problem is that Japan buys the enormous amounts of U.S bonds.

>>5
There is also the unresolved problem of Japan's excessively protectionist economic policies, its crumbling educational system, and the government's seeming hostility to upward mobility. Its no wonder the Japanese have so few children, they have very little to look forward to in terms of a prosperous and happy future.

>>6
"Excessively protectionist?" Tell that to thousands of Sony factory workers who got thrown under the bus when Sony moved its manufacturing to China.

>>7
They wouldn't be in as dire straights as they are if there weren't huge tariff barriers, unreasonably high consumer price indices, laws against foreign capital investment, stagnant social mobility and poor primary and secondary education. Not to mention the disaster that is the Japanese banking system. Yes, protectionism is one reason for Japan's recent underperformance. If the Japanese labor market didn't have such a large pool of unemployed people to draw from the Sony lay offs would not have been nearly as bad as they are.

>>8
Sounds like a bunch of empty rhetoric to me. And Japan's education is poor? Last I checked, it was one of the highest, if not the highest in the world, alongside of Finland's.