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.