Japan's latest economic slump possibly not the last
Updated
Japan looks set become the worst performer of all major economies this year. With its growth well and truly in the red, and getting worse, Asia's largest economy is forecast to plunge into one of the worst recessions on record.
Presenter: Karon Snowdon, Finance Correspondent
Speakers: Jasper Koll, chief executive officer, Tantallon Research; Takuji Okubo, senior economist, BAS Merrill Lynch
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SNOWDON: Japan is Asia's largest economy and the world's second biggest. In many ways it's an industrial powerhouse with very successful global corporations. It was the biggest foreign aid donor for many years, yet now it's almost a basket case. GDP fell three-point-three per cent for the last quarter of 2008. Some like to describe that as an annualized fall of almost 13 per cent. But that's a bit meaningless. In real terms it could pan out to a fall of more than three per cent for this coming year. As striking as that sounds, Jasper Koll, CEO of Tantallon Research in Tokyo, puts it even more dramatically:
KOLL: You're seeing right now an unprecedented decline in Japanese profitability of about 80 per cent, which is really, really striking. Essentially that means that the profits of the last five years have been wiped out in just three months.
SNOWDON: There are very few options for the authorities to act.
KOLL: Interest rates are so close to zero already, the budget deficit is at almost 200 per cent of GDP, and on top of that the popularity of Prime Minister Aso is declining very, very rapidly, so unfortunately, no quick fix. The good news is that corporate managers are taking matters into their own hands. Hard restructuring is now coming forward.
SNOWDON: Does that mean job losses?
KOLL: Absolutely.
SNOWDON: Unemployment is now at four per cent and set to rise to record levels, perhaps as much as eight per cent. Not surprising given exports are down 15 per cent, business investment has plummeted by more than five per cent, industrial production fell 10 per cent in the three months to December. In a country where recession in recent times is approaching the norm, it's the worse contraction since the oil shock of 35 years ago. Economists are now revising down their real GDP forecasts, which stood at about minus two-point-five per cent for 2009. Takuji Okubo, senior economist with Banco America Securities Merrill Lynch, says this will be the worst year since statistics began in 1955.
OKUBO: We are today revising our GDP following today's release, but it is likely to exceed three per cent decline in the year for 2009, and worst in the record has been two per cent decline in 1998.
SNOWDON: Unlike the governments of China, Taiwan, Australia, and others, which are rushing through large stimulus packages, Japan's parliament is deadlocked and might remain so until elections in October. For the Bank of Japan there's little to be gained by cutting interest rates from the current zero-point-one per cent to nothing. In a strange twist, Takuji Okubo says Japan's usual problem of its ageing population might in these circumstances soften the recession blow for households. Forty per cent of them include pensioners.
OKUBO: Therefore even if wages decline so long as Japanese government doesn't go bankrupt and stop paying pensions, which is unlikely at this point, I don't think those pensioners will be affected.
SNOWDON: Jasper Koll believes the tough times will prepare Japan's companies for the upturn when it comes.
KOLL: Japan always recovers just as economies always recover. We do have a very, very strong base of technology and eventually you will find Japanese corporations being top competitors globally.
