Japan faces unimaginable contraction

Japan’s economy faces an “unimaginable” contraction, the chief economist of its central bank warned on Monday, as figures revealed surging bankruptcies and a big fall in machinery orders.

The warning from Kazuo Momma, head of the Bank of Japan’s research and statistics department, underscored the gloom surrounding the world’s second-largest economy as export orders dry up, companies shut down production lines and consumers stop spending.

Japan, where industrial output plunged a record 9.6 per cent month on month in December, is due to announce fourth-quarter gross domestic product data next week. Polls of economists suggest GDP will have fallen more than 3 per cent compared with the previous quarter – an annualised decline of more than 10 per cent.

“From October to December the scale of negative growth [in GDP] may have been unimaginable – and we have to consider the possibility that there could be even greater decline between January and March,” Mr Momma said in a speech on Monday.

His remarks came as a private research company reported a 16 per cent year-on-year rise in the number of bankruptcies among Japanese companies to 1,360 in January, the highest level for six years. Total debts left by failed companies rose 44 per cent from a year earlier to Y839bn ($9.2bn), Tokyo Shoko Research said.

Many of Japan’s companies have suffered from the domestic slowdown and a sudden dearth of demand for exported goods including cars and electronics, as well as problems securing credit from banks. The effect on companies’ capital spending has been marked, with core private-sector machinery orders plunging 17 per cent quarter on quarter in the three months to December, the steepest fall on record.

The month-on-month fall in core machinery orders in December was down just 1.7 per cent – less than expected – but economists drew scant comfort.

“Even after this slightly better-than-expected showing, orders were still down by just under 27 per cent compared with a year earlier,” said Ben Eldred of Daiwa Securities.

“The inescapable conclusion [from recent data] is that the Japanese authorities need to do more . . . if the Japanese economy is to avoid becoming the worst affected of all the developed economies from the current global downturn.”

The Japanese gloom was replicated in Taiwan, Asia’s sixth-largest economy. In January exports fell by 44.1 per cent from a year ago, the biggest decline since government records began in 1972. It was the fifth consecutive month that exports have shrunk.

Additional reporting by Robin Kwong in Taipei

9 Feb 2009 6:46pm
By Mure Dickie in Tokyo

Source: The Financial Times

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