Thursday January 22, 08:51 AM
Japanese economic gloom deepens as exports plunge
By Miwa Suzuki
TOKYO (AFP) - Japan faces two years of recession and a return to deflation, the central bank said Thursday, as a record 35 percent plunge in exports deepened the gloom surrounding Asia's biggest economy.
Demand for Japanese goods plummeted in December, raising fears the economy may have contracted 10 percent on an annualised basis in the fourth quarter of 2008 -- the worst performance in three decades.
"Exports tumbled so much that you cannot believe your eyes," said Naoki Murakami, chief economist at Monex Securities.
Analysts said Japan's economy looked set to log its worst quarter since 1974 in the wake of the oil crisis.
"It's inevitable that we will see a 10 percent or steeper drop," said Hiroshi Watanabe, an economist at Daiwa Institute of Research.
"The global economic downturn is accelerating. Auto exports fell to the United States, Europe and elsewhere in the world. Drops have also spread to television sets, DVD recorders and other electronics," he said.
The slump in demand has inflicted heavy injuries on Japanese companies. Sony (Munich: 853687 - news) on Thursday forecast a much bigger than expected operating loss of 2.9 billion dollars, the first in 14 years.
The world's second biggest economy is now expected to contract by 1.8 percent in the current financial year to March and by 2.0 percent the following year, the Bank of Japan said.
Japan also faces two years of deflation, with consumer prices expected to drop 1.1 percent in the next financial year and 0.4 percent the following year.
The country is still recovering from a long deflationary spiral seen after its economic bubble burst in the early 1990s.
The BoJ Thursday left its key interest rate unchanged at 0.1 percent and unveiled new measures to repair battered credit markets by mopping up risky assets.
The Bank (NASDAQ: TBHS - news) said it would spend up to three trillion yen (33.7 billion dollars) to buy commercial paper, a type of short-term corporate debt, to make it easier for companies to secure vital credit during the recession.
The BoJ has little room to reduce its rock-bottom interest rates further so it is seeking alternative tools to repair credit markets and rescue the economy from a deepening recession.
It painted a gloomy outlook for the Japanese economy, saying conditions were "deteriorating significantly and are likely to continue deteriorating for the time being."
Japan logged a trade deficit of 320.66 billion yen in December, reversing a year-earlier surplus of 866.95 billion yen.
Imports slumped 21.5 percent in December as energy prices plunged. Exports tumbled 36.9 percent to the United States, 41.8 percent to the European Union and 36.4 percent to the rest of Asia.
Japan's trade surplus for the whole of 2008 dived 80.0 percent from the previous year to 2.16 trillion yen, the fastest decline since comparable records began in 1980.
Exports fell 3.4 percent, the first drop in seven years, while imports rose 7.9 percent, posting a sixth consecutive annual increase.
Japan has historically enjoyed a large trade surplus thanks to brisk demand for its cars and other goods but the recent financial turmoil and a strong yen has hit exports hard.
Its economy contracted 1.8 percent on an annualised basis in the three months to September. The government is to announce October-December gross national product in mid-February.
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