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The global economy
took another turn for the worse as Japan plunged into recession following two consecutive quarters of growth.
Please consider Japan’s economy
shrinks annualized 3.5%.
Japan’s economy shrank an annualised 3.5 per cent between
July and September, the steepest
decline since the earthquake-hit first quarter of 2011, as exporters suffered big falls in shipments to key markets such as China and Europe.
Prime Minister Yoshihiko Noda described the gross domestic product figures as “severe”,
while Seiji Maehara, economy minister, said Japan had possibly
entered a “recessionary
phase”.
In a speech on Monday, Masaaki
Shirakawa, Bank of Japan governor, said there was “no question that the [central bank] should exert every effort to enhance its easing effects
as much as possible”. He said
domestic demand was “unlikely to increase at a pace that will outperform
the weakness in exports”.
The Japanese government’s
monthly survey of “economy watchers” –
which includes barbers, hoteliers, car dealers
and others who deal with consumers – has recorded six falls in a row since April. Last month the index stood at a level little
better than that of April 2011, in the immediate
aftermath of the quake.
Japanese manufacturers from Nissan to Shiseido have reported
steep falls in sales of their products in China, following a wave of demonstrations against Tokyo’s nationalisation of some
of the islands in mid-September.
Japan’s top seven automakers have cut their projections for Chinese
sales by a fifth, for the fiscal year to March, according to calculations by the Nikkei newspaper.
Japan Trade Deficit
Largest in History
As Japan spirals out of
control, please recall Japan trade
deficit hits record as relations with China poisoned.
Japan registered
its biggest-ever trade deficit for a half of a fiscal year, in a sign that the sovereign debt crisis in Europe and the strained
relationship with China
over a territorial dispute have eroded Japanese exports, government
data showed today.
For the first half of fiscal 2012 through September, Japan logged about USD 40.6
billion (3,219 billion yen) in goods trade deficit, up 90.1 percent from a year
earlier and the biggest since the Finance Ministry began recording in 1979.
In September alone, the deficit stood at 558.6 billion yen, the third
straight month of red ink and the largest for the month of September, the ministry said in a preliminary report, augmenting fears that violent anti-Japan rallies and boycotting of
Japanese products in China
have weighed on the exports to the biggest trading partner.
Exports to China fell 8.2 percent to 5,921.1
billion yen in the first half and slid 14.1 percent to 953.8 billion yen in September, sharper than the 9.9 percent fall in
August. It was the fourth
consecutive month of deficit as various products, ranging from auto and auto parts to steel
and semiconductors, declined
notably.
The balance showed Japan suffered the biggest September deficit with China of 329.5 billion yen, as imports gained 3.8 percent to 1,283.3 billion yen.
Resentment in China has accelerated
since the Japanese government decided last month to nationalize part of an
island group in the East China Sea,
also claimed by Beijing
and Taiwan.
Japan Current
Account Turns Negative
The trick for Japan is
how to finance its national debt,
now at a majorly unsustainable 235% of
GDP.
Japan was able to do so for years on account of its current account surplus, of
which trade is typically the largest component.
You can now kiss that surplus goodbye because Japan Current
Account Turns Negative
The world's third-largest
economy has run a surplus
in its current account, a measure of trade in goods, services and investments, for several decades—meaning it's earning more from exports and investments abroad than it
spends at home. In fact, Japan the world's biggest creditor nation.
The surplus has been in the spotlight recently, since Japan also has the developed world's biggest debt load, now nearing
a quadrillion yen ($12.5 trillion)—more than double its gross domestic product. As long as the current
account surplus remains, economists say, Japan is in little
danger of a Greek-style crisis,
since its debt is largely
being funded by household savings.
While that remains the case, Japan reported Thursday that the seasonally adjusted current-account was in deficit in September—for
the first time in more than 30 years.
The sudden surprise drop has some
economists warning that Japan's ability to generate wealth is eroding faster
than expected, and its fiscal situation could be more fragile than many had thought.
The Finance Ministry says
Japan won't slip into a structural current-account
deficit very easily, since deficits in the trade of goods and services will be offset by huge surpluses in what the country earns on investments in overseas assets such as U.S. Treasury bonds.
But the Japan Center for Economic
Research argues a structural deficit
in could be as close
2017, noting fuel-import levels
are likely to stay high
if most nuclear plants stay off.
The Japan Research
Institute, another think
tank, says a structural deficit
could start in 2022 if crude oil prices keep
rising. Hideki Matsumura, an economist with the institute, said it could
come earlier if the current
strong-yen trend, which hurts Japan's ability to sell overseas, continues.
"Many countries are catching
up with Japan in the manufacturing field," he said. "If they can produce
similar products for a cost 20% to 30% less than Japanese do, Japan will soon
find no demand for its products."
Bug in Search
of Windshield
As my friend John Mauldin suggests, Japan is a bug in search of a windshield.
I highly doubt Japan can make
it to 2022 or even 2017 before it runs
into serious issues.
Actually, Japan has extremely serious issues already, it's just that the market is ignoring
them for now. If interest rates rise by a mere 2% or so, interest on the national debt will consume 100% of Japanese tax revenue.
Global imbalances are mounting.
I suspect within the next
couple of years (if not 2013) Japan
will resort to the
printing press to finance interest
on its national debt and
the Japanese central bank
will start a major currency war with all its trading partners to force down
the value of the yen.
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