Japan trade deficit explodes

AFP reports that Japan trade deficit explodes:

(emphasis mine)

Japan's gloom deepens as exports suffer record drop
37 minutes ago

TOKYO (AFP) — Japan's economic woes deepened Monday as data showed it suffered a record drop in exports amid a global crisis while sentiment drastically weakened even among heads of major companies.

Japan reported a trade deficit of 223.4 billion yen (2.5 billion dollars) in November as exports fell at their fastest-ever rate, according to official figures released from the finance ministry.

The Japanese economy "stepped up the pace of its decline last month but is falling head over heels this month," said Hiroshi Watanabe, economist at Daiwa Institute of Research.

"Japan has been hit by an unprecedented, sudden change in climate," he said.

A survey published in the Nikkei economic daily Monday showed a rapid worsening in sentiment even among large companies.

The mid-December survey found 99.3 percent of chiefs at Japan's 137 major corporations believe the domestic economy is deteriorating.

Among them, those who said the economy is worsening "rapidly" rose to 86.8 percent from just 10.8 percent in the previous survey conducted in early October, the daily said.

The trade deficit , which was much larger than the October deficit of 67.7 billion yen, reversed a surplus of 784.4 billion yen a year earlier, even though imports fell for the first time in 14 months.

Japan's imports in November shrank 14.4 percent from a year earlier to 5.55 trillion yen on lower oil prices, while overall exports tumbled 26.7 percent to 5.33 trillion yen.

The fall in exports was the steepest decline in comparable data dating back to 1980, the ministry said.

It was also the first time Japan has incurred a trade deficit for two straight months since October-November 1980, when the nation was reeling from a second oil crisis.

Japan has enjoyed a large trade surplus since the 1980s thanks to brisk demand for its cars and other goods but the recent financial turmoil and a strong yen have hit exports hard.

November shipments of automobiles plunged 31.9 percent with microchips and other electronics components falling 29.0 percent.

US-bound exports fell 33.8 percent, also the fastest pace on record, to 993.9 billion yen while shipments to the European Union tumbled 30.8 percent to 711.2 billion yen.

Exports to the rest of Asia fell 26.7 percent to 2.58 trillion yen.

"The global economy has been worsening but deterioration in emerging countries in Asia, the Middle East and Russia is now conspicuous," Watanabe said. "The worsening of the global economy is accelerating."

Watanabe also said Japan would continue to be weighed down by a strong yen, which reduces earnings for exporters when their income is repatriated.

The Japanese economy was likely to pick up from late 2009 to early 2010 with exports recovering in tandem with the world economy, he said.

But the real effect of a strong yen on exports will come around that time, he said, noting that current trade is done at rates fixed in forward exchange contracts that were made when the yen was weaker.

"The Japanese economy may only show a dull recovery rather than a clear-cut upswing," he said.

The yen was trading at around 90 to the dollar on Monday, compared with above 110 yen a year earlier.

My reaction: The same problem affecting the US is affecting Japan: a manufacturing sector concentrated in industries most vulnerable to an economy downturn. Unlike the US though, Japan has built up a large foreign reserve as a result of years of trade surpluses with the US. So while the outlook for the yen is negative, the currency will not suffer nearly as much as the dollar.

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