Published February 26, 2009

Japanese exports crash 46%, rattling yen

Economy forecast to shrink 4% or more this year

By ANTHONY ROWLEY
IN TOKYO

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JAPAN'S exports plunged a staggering 46 per cent last month from January 2008, creating a 953 billion yen (S$15 billion) trade deficit.

But as the dismal data was announced yesterday, some relief appeared to be in sight for the country's battered exporters from a further fall in the value of the yen.

Japan appears to have developed a long-term trade deficit - January's was the fourth in a row. And this, combined with fears of an emerging economic and political crisis, is scaring off yen investors, analysts said. Further falls in the currency are therefore likely.

Collapsing exports to most major markets have hammered industrial output and corporate capital spending, and with personal consumption also falling, the economy is contracting at a rapid rate. Consensus forecasts are for GDP to shrink 4 per cent or more this year.

Exports are crashing at an accelerating rate, with January's 45.7 per cent drop well ahead of December's 35 per cent fall. Only falling import values on the back of commodity price declines are preventing the trade deficit from ballooning more dramatically.

Leading exporters such as Toyota, Sony, Panasonic and others have seen their exports plunge and their profits turn into losses in some cases as demand has collapsed in the United States and other major markets.

Leading exporters such as Toyota, Sony, Panasonic and others have seen their exports plunge and their profits turn into losses in some cases as demand has collapsed in the United States and other major markets. Demand for Japanese cars in particular dropped by 69 per cent.

Additionally, the high yen has slashed the domestic value of overseas profits.

But yesterday, the yen continued the slide it has shown in recent days against other major currencies. Against the US dollar, it fell 0.7 per cent to 97.32 after touching a three-month low of 97.35. And against the euro, it fell 0.5 per cent to 124.79 after hitting a seven-week low of 125.01. The yen also fell against the pound and the Australian dollar.

'The yen has turned vulnerable as many beliefs about Japan have become a thing of the past, and one of those was that the economy has the support of a big trade surplus,' Tsutomu Soma, senior manager of the foreign securities department at Okasan Securities in Tokyo, told Reuters.

But analysts are unsure about how much the weaker yen can help ease Japan's economic plight.

'A weaker exchange rate will help to some degree,' said chief economist Richard Jerram at Macquarie Securities in Tokyo. 'On a trade-weighted basis, the yen is almost 10 per cent down from its mid-January peak. But this is secondary compared with the need for an improvement in overseas demand.'

Japan's exports 'are down 37 per cent from September to January', Mr Jerram said. 'The negative contribution from net exports accounted for 10 points of the 12.7 per cent annualised drop in 2008 fourth-quarter GDP. Imports are now falling as well, so the 2009 first-quarter net export contribution will probably be smaller. But another large negative seems unavoidable.'

But there 'appears to be a glimmer of hope in the Baltic freight index, which has trebled from its December lows', he said. 'This suggests that some liquidity is coming back into world trade, which implies that exports should rebound to some degree in Q2 2009.'