Japan's Recession is Deepening


In the last quarter of 2008, Japan's economy shrank at an annual rate of 12.1 percent confirming that the downturn which began in November 2007 may become one of the longest recessions the Japanese economy has ever seen. What is behind the slump and what can be done to soften the downward spiral?

Exports which have been the main driver of the Japanese economy over the past few decades are deteriorating day by day due to a weakening global demand and a strong yen. For example, exports plummeted 35 percent from a year earlier in December, the sharpest decline since 1980 with shipments to the U.S., China and Europe plunging the most ever. Along with a dramatic drop in external trade, domestic consumption is slowing as shrinking industrial production is hitting corporate profits, business investments and causing the job cuts. To make things even worst banks are more reluctant to lend prompting the bankruptcy of many small businesses.

The shocking decline in GDP growth is fuelling calls for more aggressive measures from the government and the Bank of Japan. But, so far the Japanese government keeps on announcing stimulus plans instead of implementing them. For instance, the plan drawn up last October, which includes 2,000bn yen or US$22bn in cash handouts is being still debated by the parliament because the opposition controls the upper house. Moreover, recent rate cuts by the Bank of and the central bank actions to purchase of shares and corporate debt from lenders seems to have little effect in face of a deficient demand for Japanese products from overseas.


Anna Fedec, contact@tradingeconomics.com
2/17/2009 3:52:17 PM