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Analysis: The world's second largest economy stumbles again. What should we make of this?
Absorbing recent economic news from Japan is like being wrestled to the ground by a sumo: it's painful, and more than a little crushing.
The world's second largest economy is already in recession, and the numbers are growing grimmer. December exports fell by 35 percent from the previous year. With weakness in the U.S. and China pummelling demand for cars and electronics, Japanese industrial production dropped 9.6 percent in December — a record fall.
It only gets worse on closer inspection.
December sales at the world's biggest automaker, Toyota, tumbled 37 percent in the U.S., its largest market. Honda's sales dropped 35 percent here. Nissan's U.S. factories are now running just four days a week, and all three companies are cutting jobs and slashing production as the global credit crunch keeps people from buying Sentras, Corollas or Accords.
Sony, meanwhile, says it will report its first loss in 14 years. Nintendo has cut its full year profit forecasts by almost $6 billion. Toshiba, Japan's biggest chipmaker, warns its annual loss will be $3.1 billion — its worst ever.
On the political front Prime Minister Taro Aso was humiliated in Parliament this week, with the leader of Japan's biggest opposition party saying Aso's Liberal Democratic Party had "completely lost touch with the people."
And to add injury to insult, the weakening economy is contributing to a surge in crime by Japan's growing elderly population, as GlobalPost correspondent Gavin Blair reported this week.
Japan's sudden fall is sad. It's maddening. And it's more than a little alarming.
That's because the conventional wisdom was that the country had finally recovered from its long economic slide — a "lost decade" that began after the twin popping of its real estate and stock market bubbles in 1990 (sound familiar, President Obama?).
In fact, until slipping into recession in the third quarter of 2008, Japanese gross domestic product had expanded for six straight years, its longest period of economic growth since World War II.
What's most troubling about this latest decline is that it didn't have to turn out this way.
Japan is not at the center of the current economic storm. It didn't have new housing or stock market bubbles. Its companies had done a good job of paying off debt. Its banks are largely free of all those collateralized debt obligations and other toxic assets. Its consumers enjoy a traditionally high savings rate, which should help cushion the economy in any downturn.
But the pain has, indeed, arrived. The memories of recent economic hardship run deep in Japan, and Tokyo's ineffectual political leadership hasn't helped restore confidence.
And confidence, in any economy, is the key ingredient. If it's not there consumers don't spend. Businesses don't invest in new equipment or hire new workers. Banks don't lend. Investors flee the markets, further restricting the availability of capital and further depressing consumer demand and spending.
And here's the worst part: Until Japanese consumers, its government, and its world-class companies begin showing some improvement, the global economy will be hard pressed to recover.
Japan, after all, remains the main economic engine of Asia, and an important driver of global growth. But it's one that is quickly — too quickly — running out of gas.
Goodbye Kitty? Let's hope not.
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