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Friday, January 30, 2009

Japan Recession - Causes


The Japanese government formally acknowledged last November that its economy had fallen into a recession.

This recession - two quarters in a row of negative growth - has witnessed the world's second largest economy's GDP contract by 0.4 percent from July to September of last year.

Japan's last recession was in 2001, following the collapse of the dot-com bubble in the USA.

In Japan, there is no doubt as to why the recession is happening. All fingers point across the Pacific at the United States.

Following the subprime lending and banking crises in the US, consumers there stopped purchasing with their usual zeal - or with any zeal at all.

Japan remains heavily dependent on exports, mainly to the US, and this is hurting sales.

Blue chip firms like Toyota, Honda, and Canon have seen profits dip by as much as 70 percent.

Making things even worse is the dollar - yen rate. Most major manufacturers generally budget $1 to 110 yen for their exports. Of late, however, the yen has been trading in the high 80s.

This makes the few Japanese who do travel abroad close to kings (or, more likely, queens) with their tremendous purchasing power. However, for Japanese companies trying to sell from Japan to the US, the strong yen - weak dollar makes Japanese goods in the US more expensive and is a nearly fatal blow.

Hard to believe, but there is still more bad news.

Worse still is the hangover from Japan's "lost decade" of the 1990s: huge public debt. Japan is saddled with the highest amount of debt of any developed nation. This curtails its spending options.

The reaction of the Aso government? A 12,000 yen (roughly $140) handout to all adults, including foreigners with a permanent visa, this spring. This stimulus package is however opposed by a majority of Japanese.

Even for a nation of chicken littles, this is all a bit too much to take.

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