Japan’s markets prepare for horror week

DREADFUL December industrial production figures from Japan and South Korea show the global recession is smashing manufactured trade.

Japan’s industrial production index dropped a record 9.6 per cent, month-on-month, solidifying fears the world’s second-largest national economy is shrinking at a double-digit rate.

Many economists expect preliminary GDP figures to be released in a fortnight will show the Japanese economy shrank at an annualised 10 per cent or more in the fourth quarter of last year.

South Korea’s industrial output shrank for the sixth successive month, also by 9.6 per cent from November, prompting central bank governor Lee Seong-tae to publicly doubt Bank of Korea’s own prediction a month ago of the economy growing 2 per cent through this year. With exports accounting for 45 per cent of GDP, South Korea’s economy, the fourth-largest in Asia, is cruelly exposed to the recessionary ebbing of the international goods trade.

The across-the-board crash of the Japanese economy, five times the size of South Korea’s, sent shudders through world markets yesterday.

Coming ahead of the expected overnight confirmation that the US economy shrank about 4.5 per cent annualised in the December quarter, the news out of Japan has set the markets up for a horrific resumption next week. The collapse of Japanese manufacturing activity in the face of deepening global recession is extremely bad news for Australian minerals and energy exporters, with iron ore and coking coal producers already facing severe price cuts for the 2009-10 fiscal year.

Japan, which bought $34.97 billion worth of Australian goods last year, remains our largest export customer.

Besides the fall in industrial production, the worst month-on-month since the series started in 1953, December unemployment jumped 0.5 per cent to 4.4 per cent — the largest rise in 42 years, and household spending slumped 4.6 per cent.

Even domestic construction, one of the few areas of Japan’s economy that had held out against the cascade of plunging indicators, gave way in December, with orders down 30 per cent.

Industrial production fell 8.5 per cent in November and the Ministry of Economy, Trade and Industry, which compiles the index, is forecasting another 9.1 per cent fall this month.

“I am extremely worried about industrial production. Probably such a sharp decline was never experienced in the past and it is likely to continue,” Economy Minister Kaoru Yosano said. “As for when the economy will bottom out, it is impossible to predict at this time because the problem is not only domestic but global.”

On the Tokyo market, the Nikkei 225 index closed at 7994.05, a 3.1 per cent plunge, and most of that happened in the first 15 minutes of trading as investors were belaboured by terrible economic and corporate news. Toyota did not respond yesterday to reports its expected operating loss for the year to March 31 had widened from Y150 billion ($2.59 billion) to Y400 billion or more, but the market took it as fact. Toyota’s price dropped immediately on opening to the daily trading limit.

Electronics and computer giant Hitachi said it expected a Y700 billion net loss in the fiscal year and would slash fixed costs by Y200 billion and its workforce by up to 4000 in the next year.

NEC said yesterday it expected a Y290 billion net annual loss and would cut 20,000 jobs. In October, it tipped a Y15 billion net profit.

Mizuho Financial Group was yesterday the first of Japan’s megabanks to confirm it had fallen into the red this year.

Peter Alford, Tokyo Correspondent
January 31, 2009

Source: The Australian

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