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New Year blues in Japan

Posted by: Ian Rowley on December 31, 2008

It will be very interesting to see how busy Japan’s department stores are on January 2, the traditional start of the New Year sales season. In normal years, keen shoppers queue in their hundreds to get first in line to pick up the bargains. But last the 12 months, and the last few weeks in particular, have been anything but normal.

Indeed, while Japan’s problems remain the same—slowing demand and a surging yen—the size of their combined impact is growing remarkably quickly. During the last few weeks, companies, including Toyota, Honda and Panasonic, have all issued profit warnings as the yen surged higher, hurting their profitability, and demand for their products fell faster. Temporary workers are being laid off in their thousands, while the government, whose Prime Minister Taro Aso has an approval rating of just 21%, has been predictably slow to react to the crisis.

To gauge just how tough the environment has become, consider some of the data from the last week:

- The Japanese government said that industrial output slumped 8.1% in November—the biggest month-on-month drop since comparable records began in 1953.
- The same day the government also said that inflation had dropped at the sharpest rate since 1981, prompting fears of a return of deflation,
- Toyota, after saying it would make a first operating loss in 70 years during fiscal 2008 on December 22, two days later revealed it cut production in Japan by 24% during November, the biggest drop in 30 years.
— On December 30, economists at Barclays Capital published a report which predicts that during the current quarter Japan’s GDP will contact at an annualized 12.1%. If that happens, it would mark the biggest contraction since 1974.
— Also December 30, the Nikkei 225 index closed 2008 down 42%, a record single year plunge.

Such horrendous figures are some achievement given Japan banks were relatively unaffected by the subprime crisis. For a brief time, although it now seems a long time ago, there was hope that demand from emerging markets would help Japan avoid a recession. But with even China slowing from the breakneck growth of recent years, Japan’s really needs those New Year shoppers to come out in force.

Reader Comments


December 31, 2008 3:56 PM

What a mess American irresponsable financial system has done in world economy!

Excess of globalization

January 1, 2009 2:51 AM

Japanese economic development model had fundamental structural weakness. It depended too much on the assumption US will be OK. But I was expecting US economy will belly up for several years.

If Japan used the surplus money to improve intra trades within the country, the problem should be far less severe than now. Although Japan is rich with lots of foreign credits, ironically many of her citizens will suffer from it!


January 1, 2009 3:52 AM

The Japanese are rich, have stable jobs, have good healthcare system, have good social safety net. Yet they are always scared of spending money. Super-low interest rate only managed to turn house wifes into carry-traders. This country is hopeless.

Joseph T.

January 1, 2009 7:12 AM

It ends up that emerging market demand was just a derivative of US demand.
Americas best asset is our market, we should be charging an entrance fee rather than giving it away for free.


January 1, 2009 8:41 AM

There's a difference between being scared to spend money and not buying more than you need. That's what got America into this entire mess; overspending. House wives hardly have an impact on the carry trade.
Once America quits buying so much of the world's goods and materials on credit, the global economy will be fine. America however has gotten itself into a huge hole buying overpriced houses and credit card overuse. And all of it, we owe to foreigners.


January 1, 2009 1:43 PM

America (for all the bashing) still furnishes the best capital markets, EXIM systems and infrastructure. All thats happened is that what the Japanese were doing for the last 2 decades (here is a car and here is the loan Mr Average Joe) was being copied by the Chinese (here is a DVD player and here is a loan mr joe). Excess liquidity led to risk concentration thats all.

Francesco Sinibaldi

January 1, 2009 3:41 PM

Christmas carol.

Shining lights
and the plan
of a destiny,
when Christmas
arrives: I see
the profile of
a northerly wind
near the sound
of a feast, a
rosy return
and always a
white dream
on a similar sight.

Francesco Sinibaldi


January 2, 2009 4:51 PM

America is BAD. America is IRRESPONSIBLE. America WASTES a lot.

So why does the rest of the world DEPEND on America than? Stupid whiny U.S. bashers. Try living in Japan - where the safety net is so thin thousands suicide. Try living in Europe - you'll love their "free" medical. Europe where people were told to finish their chemotherapy before summer holidays or it won't be finished. Yeah, America is BAD - MOVE OUT to the greener pasture next door, you whiny imbeciles.


January 3, 2009 12:08 PM

Whatever we are discussing here can be traced back to WWII. The victory gave the US the power to write the rules of world economy and finance, starting from Bretton Woods System.

A democratic system, a unified country bigger than the size of Europe, backed by the strongest military strength, we became not only the market but the bank of the world. Countries from Japan to Jamaica and from China to Chile sell their products to us and put about 13 trillion dollars back to our pockets. Triggered by the abandon of Gold Standard, Uncle Sam prints as much Greenbacks as needed while maintaining controllable inflation and low interest rate, which creates the "speed of money" and makes all of us US citizens richer and richer.

Is America Bad? Absolutely not, as we have the most freedom in the world. (So, no one has the right to tell others to "move out" and saying so will not help the recovery of the economy.) Is America wasteful? Yes, but that is the by-products of any rich family or rich country. Is America irresponsible? I'd say so. Philosophically, no absolute power remains absolute forever. Sometime in the future, there will be other powers emerge to share the role of "police of the world". When that happens, some or all of the 13 trillion dollars will leave our pockets and our children and grandchildren will suffer.

Today's financial tsunami indeed was started by the US. In financial term, it is called "correction" (due to the above mentioned "speed of money"). In religious term, it is the cause and effect brought in by our greed.

While we enjoy our good life today, don't forget the millions of lives lost in WWII. Without the US victory in WWII, there would be no Bretton Woods System and we may not have today's living standard. Of course, we may not have the financial troubles, either.


January 3, 2009 1:37 PM

American's greedy mistakes. Now the whole world has to suffer for years.

Mr. Purple

January 3, 2009 6:24 PM

December 31, 2008 03:56 PM

What a mess American irresponsable financial system has done in world economy!"

That's just silly - the problems with Japan's economy lie beyond America's financial system.

James Raider

January 3, 2009 9:11 PM


Behavior modification requires acknowledging past mistakes.

What did we do for twenty years?
Now let’s get on with the correction.


January 4, 2009 12:00 AM

America need to be more RESPONSIBLE, not only about banks, but about its international role in environment issues, help more poor nations to become wealthy in Africa, middle East, Latin America, and stop being so selfish thinking just about "our standard of living". Lets hope America change sooner before its irresponsibility drag everybody down.


January 4, 2009 3:39 AM

we are not living well too,


January 4, 2009 7:05 AM

Japan's national economic business model has been broken since the 80's. The bubble was just the final cheer as the economy reached its limit in terms of growth potential. Now with a decreasing population dragging down the real economy, not matter of government deficit spending is going to bring it out of the current recession.
The people need to re-invent the economy that is not dependent on deficit spending and exports to the US (or other countries).

Fallen Ray

January 4, 2009 11:20 PM

I live in Japan now.
I know exactly how it feels.

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