Published January 14, 2009

Struggling Japanese economy takes a triple blow

Latest data on trade, earnings and credit bodes ill for economy

By ANTHONY ROWLEY
IN TOKYO

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JAPAN'S crumbling economic fortunes were highlighted again yesterday when officials reported a 66 per cent plunge in the nation's current account surplus for November as exports collapsed.

Cloudy outlook: Behind Sony's poor prospects are faltering sales in the key US and European markets

There was also a report yesterday that electronics giant and leading exporter Sony Corp will post an operating loss of around 100 billion yen (S$1.7 billion) for the fiscal year ending March. Motor industry leader Toyota has already forecast a major loss.

Other data, meanwhile, shows the credit crunch in Japan is cutting off corporate access to capital markets and forcing companies to turn to banks for help, despite efforts by the Bank of Japan to keep money flowing through the markets.

The drop in November's current account surplus to 581 billion yen - from 1.7 trillion yen a year earlier - underscores the dramatic collapse in Japan's exports as world demand slumps and the yen rides high in foreign exchange markets. Some analysts expect a current account deficit this year.

Shares in Sony dropped 9 per cent yesterday after the Nihon Keizai Shimbun newspaper said the electronics major will soon announce its first operating loss in 14 years.

Toyota shocked markets late last year by announcing it would suffer its first operating loss in more than 70 years in the financial year to March 31, 2009.

The strong yen is wreaking havoc with profitability of Japanese exporters when overseas earnings are converted into yen.

The yen surged to a three-week high of 89.6 to the US dollar yesterday, reversing some of the weakness it has shown since the New Year. Plunges in the Australian and New Zealand dollars against the y+en also pointed to a new bout of strength for the Japanese currency, dealers said.

Japan's Finance Minister Shoichi Nakagawa said he is watching the forex market carefully, but analysts do not expect Japan to intervene unilaterally to curb the yen's rise at current levels.

Besides problems with the strong yen, Japanese companies face a credit crunch as capital and money market funds dry up and interest rates rise in these markets as a result. Issues of commercial paper, which companies use to secure short-term funding fell 15 per cent in December 2008 from the level a year earlier, data shows.

As a result, firms were forced to turn to banks for finance, causing bank lending to rise a record 3.7 per cent last month compared with a year earlier. 'Corporate executives are very worried because their cashflow is clearly dwindling,' said Hideo Kumano, chief economist at Dai-ichi Life Research Institute.

The central bank, meanwhile, is trying to counter the situation by making 'outright' purchases of corporate commercial paper via banks and assuming the credit risk on such debt.