Record Japan Export Plunge Adds to Recession Gloom

Japanese exports plunged a record 35 percent in December from a year earlier and business sentiment hit a new low, highlighting the severity of the global financial crisis and reinforcing expectations that Japan faces a long and deep recession.

Katsumi Kasahara / AP

As gloom over the outlook persists, the Bank of Japan is expected to emerge from a two-day policy meeting on Thursday with more details of how it will seek to unglue financial markets through buying commercial paper and maybe even other corporate debt, as companies struggle to raise cash.

"With growth in Asia and other emerging economies slowing, there is nothing to support Japanese exports. We'll likely see external demand push down October-December GDP growth quite a bit," said Yoshiki Shinke, senior economist at Dai-ichi Life Research Institute. "The yen's sharp rise is also very damaging and will delay a recovery in Japan's economy."

Rising risk aversion in the face of renewed jitters over the U.S. and European banking sector woes pushed the yen [JPY-TN  88.99    -0.47  (-0.53%)   ] to a 13-year high against the dollar near 87 yen on Wednesday, before regaining some ground.

Boding ill for the economy, Japanese manufacturers' business mood hit a new record low and service sector sentiment worsened to a level not seen in seven years, the Reuters Tankan showed.

To deal with the downturn, many companies are cutting jobs, raising more concerns over domestic consumption. 
     
Sales Slide to Asia, U.S.

The slide in exports has left Japan with a trade deficit for three months in a row, despite recent falls in oil and other commodity prices.

The record 35.0 fall in exports from a year earlier was bigger than an already gloomy median forecast from economists for a 30.1 percent fall.

Shipments to recession-hit United States plunged 36.9 percent on sharp declines in automobile shipments, marking the 16th straight month of decreases.

Exports to Asia tumbled 36.4 percent with those to China down 35.5 percent, as the trade within East Asia collapsed in the wake of the plunge in the global demand for cars and electronics.

Plummeting exports has prompted leading Japanese manufacturers, particularly car makers such as Toyota Motors [TM  67.52    1.64  (+2.49%)   ], to slash production at an unprecedented pace.

The trade data showed imports tumbled 21.5 percent, also more than a 16.5 percent fall economists had forecast, a sign domestic demand may be weakening. 
     
Gummed Up Markets

Worries over the deepening recession and ongoing problems in global financial markets in the past several months have made it more difficult for companies to raise funds.

Though the strain has shown some sign of easing, worries persist about renewed market tensions ahead of the March end of the fiscal year, when fund demand tends to rise as many companies close their books in Japan.

The BOJ last month cut interest rates to 0.10 percent from 0.30 percent as the global downturn sent exports and industrial production into cliff-diving.

At its policy meeting ending on Thursday, the central bank is expected to follow up on the pledge it made last month that it will buy commercial paper outright to help companies' financing.

Also likely to be debated is whether the BOJ should buy not just short-term corporate debt such as commercial paper but longer-term corporate debt such as bonds, although many analysts do not expect the central bank to buy corporate bonds at this stage.

Copyright 2009 Reuters.