Japan's Economy May Shrink at 6.5 Percent Annual Pace This Quarter

Strategic Insights -

Japan's economy may contract by 6.5 percent on an annual basis in the fourth quarter, according to a report by Bank of America Corp. This would be the steepest decline since the 1998 Asian financial crisis and a sales-tax increase led to a 7.5 percent drop. The country's industrial production and exports have posted the biggest declines on record, with factory output plunging 8.1 percent in November and exports falling 26.7 percent from a year earlier.

The global economic downturn is affecting Japan's economy, with external demand vanishing suddenly. Companies such as Toyota Motor Corp. and Sony Corp. have idled plants and laid off workers due to reduced sales. Meanwhile, consumer confidence is at a record low, making it unlikely for household spending to pick up the slack. Japan's government has indicated that it will not add to its existing two stimulus packages, and Finance Minister Shoichi Nakagawa has stated that the government's priority is to carry out measures announced since October.

Key Takeaways:

  • The Japanese economy may contract by 6.5 percent on an annual basis in the fourth quarter, according to Bank of America Corp.
  • Japan's industrial production and exports have posted the biggest declines on record, with factory output plunging 8.1 percent in November and exports falling 26.7 percent from a year earlier.
  • Companies such as Toyota Motor Corp. and Sony Corp. have idled plants and laid off workers due to reduced sales.
  • Consumer confidence is at a record low, making it unlikely for household spending to pick up the slack.
  • Japan's government has indicated that it will not add to its existing two stimulus packages.
  • Finance Minister Shoichi Nakagawa has stated that the government's priority is to carry out measures announced since October.

Statistics:

  • Projection of Japan's economy contraction: 6.5 percent annualized, according to Bank of America Corp.
  • Decline in factory output: 8.1 percent in November from October.
  • Decline in exports: 26.7 percent from a year earlier.
  • Date of the biggest decline in industrial production on record: November.
  • Date of the biggest decline in exports on record: not specified in the source.
  • Number of years since Japan's last recession: 2001.
  • Size of spending announced by the government: about 10 trillion yen ($110 billion) on employment and aid for households.

Sources:

  • Bank of America Corp.
  • Tokyo
  • Tomoko Fujii, head of Japan economics and strategy at Bank of America
  • Financial Times
  • Finance Minister Shoichi Nakagawa
  • Euclid Infotech Pvt. Ltd.