Is Japan Helpless To Help Itself?

Posted by: Kenji Hall on March 12, 2009

Dreary news about the economy comes in big dollops these days. The latest: Revised gross domestic product (GDP) figures confirming that Japan’s economy shrank at an annualized 12.1% in the October-December quarter. That’s not as bad as the preliminary quarterly GDP data—a 12.7% contraction—announced last month.

But it doesn’t change the overall story: Things went south quickly for Japan in late 2008.

One reason that the world’s second-largest economy is in such a funk is that it got whacked hard by the downturn in the U.S., Europe and China. The result: Exports have collapsed, inventories are growing, and companies are doing what they can to scale back production, lay off unneeded staff, and put off building new factories.

It’s debatable whether Japan can do much to help itself. So far, Tokyo has approved two economic stimulus packages totaling $66 billion. That includes $20 billion of cash payments (ranging from $120 to $200 for each person) that are already getting doled out. The government and central bank have adopted creative ways to keep credit lines open to companies and banks in need. And this week, there are fresh signs that the government-run Banks’ Shareholdings Purchase Corp. is prepared to prop up the stock market by buying up to $200 billion worth of stockholdings from banks and shares in banks that are owned by companies.

And yet economists are still predicting a dismal January-March quarter. In a note to investors today, Barclays Capital forecast a 10.6% annualized fall in GDP in the first quarter of 2009 (that’s minus 2.8% in January-March, vs. October-December). The asset management firm cautioned investors not to pin their hopes on another round of public spending to boost the economy. Any further action from politicians is more likely to be aimed at winning votes in the next general election, which must be held sometime by September.

So should Japan try to do more to get consumers at home to spend or should it sit tight until its two biggest export markets, the U.S. and China, rebound? Barclays’ Kyohei Morita and Yuichiro Nagai think Japan’s trading partners will eventually pick up the slack. The duo will be watching for signs of a second-half bottoming out in Japan “with a view to the effectiveness of U.S. and Chinese fiscal policy” but also warn of possible trade protectionism overseas, a minus for Japan Inc.

Reader Comments

Squeezebox

March 13, 2009 10:57 AM

Countries must learn to consume what they make and not rely so much on exports. It's nice to have customers abroad, but when you pin your entire economy on them, what you get is vunerablilty to the world economic cycle. As your trading partners fare, you do too. Everybody wants to work hard making things and doing things, but only Americans seem to want to buy anything.

GP - Sao Paulo

March 13, 2009 11:11 AM

One could have asked the same question regarding the British since they lost their empire:

Japan is by essence an insular nation and culture. Their foreign successes: where they excel with technology and quality. The best they can do right now is to offer more comfort to its own citizens at home:

1) Improve their often precarious housing (would rev up the building industry and what comes with it).

2) Invest considerably more in education. Today's alarming suicide rate among Japanese students is largely due to the stressy conditions under which they live as much as for the antiquated patriarchal attitudes their teachers, parents and future employers still demonstrate.

3) If they manage to IMITATE the Chinese (yes, not dominate)in their minds a bit more, i.e. to be more pragmatical, Japan continues to be a great nation. As Britain.

dave

March 13, 2009 11:35 AM

Japan has been used to the USA paying for Japan's defense, permitting them to maintain closed markets while the US "gave away" key industries,etc. The only thing the USA has asked for is that Japan continue lending us money so that we can consume their products and maintain our title of world's policeman. The USA is so far in debt that this relationship can no longer continue. The Japanese, by nature, are very cheap people. One solution: pay the USA the billions they don't have to spend themselves on defense. In turn, the US defense workers and others can continue buying their products.

Luke

March 15, 2009 9:51 AM

Japan does not actually rely on the US for it's defense the JSDF is quite well funded, manned and equipped. However their presence isn't felt overseas due to the still in place post world war 2 treaty which bans Japan from deploying military force overseas.
The biggest problem which they are facing is the high Yen caused partly by the rest of the worlds falling currencies and also by protectionist policies. This causes their export goods which make up a significant proportion of the economy to be more expensive. There is unfortunately very little that can be done about this and the one time an intervention into the currency market was discussed it was vehemently opposed by the US for the simple if selfish reason that the already failing American automobile companies would become even worse of if Japanese cars were cheaper.

Mike

March 15, 2009 1:40 PM

What Japan really needs is a help from US to devalue Yen to a more reasonable level. US should not forget Plaza Accord when Japan helped US.

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Bloomberg Businessweek’s team of Asia reporters brings you the latest insights on business, politics, technology and culture from some of the world’s biggest and fastest-growing economies.

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