There was a bit of anti-climax in the news. It had been tipped by quite a few people, except it seems business economists in Tokyo.
But the news yesterday that Japan had joined Germany, Ireland, New Zealand and Italy in recession didn’t come as a tremendous surprise.
After the eurozone slipped into official recession on Friday, many commentators said over the weekend that Japan would be next.
Yesterday data from the government in Australia’s biggest trading partner, showed that third quarter growth contracted 0.1%, after 0.9% contraction in the June quarter.
The contraction in Japan’s economy was mainly the result of a 1.7% drop in business investment in the third quarter.
That was due to exporters cutting demand for new equipment and upgrades as they sold less overseas.
The preliminary estimate released by the Cabinet Office in Tokyo will be updated in a couple of weeks when more information about trade and a couple of other items become available, but it seems that forecasts from the IMF and OECD of a recession are right.
Both groups are forecasting Japanese growth to be negative 0.2% next year.
Economists had in fact forecast a rise of 0.1% after the contraction in the June quarter.
Annualised growth shrank 0.4% in the three months to the end of September, following a revised decline of an annualised 3.7% in the second quarter.
There are now expectations that things will get worse before they show any sign of improvement, possibly in 12 months time.
The sluggish economy can be seen in the slump in activity in retailing, cars, exports, machinery orders and in spending generally. It’s weak and not confident.
A sharp rise in the value of the yen, (up 9.5% since the end of the quarter) has worsened conditions, especially for exporters which remain the heart and soul of the economy.
Toyota is a bellwether for Japan: it’s the country’s industrial leader and it’s looking at a 70% slump in second half earnings, lower sales in Japan, Asia, Europe and especially the US.
Tokyo media reports say Toyota will lay off 3,000 workers over the rest of the 2009 financial year: a real sign of the damage being done to the company by the slump. It is also cutting a production boost at a factory that makes upmarket Lexus vehicles.
And in India news that the country’s central bank has joined the group of regulators flooding their economies with money to try and stave off a credit freeze.
The US, Europe, Japan, Australia, New Zealand, the UK; in fact most major economies are seeing similar actions by their central banks.
News reports said India’s central bank took emergency measures at the weekend to avert a growing liquidity crunch affecting the country’s estimated $US44 billion of outstanding trade finance.
Blocked trade credit is threatening to bring productive sectors of the economy to a standstill, particularly small and medium-sized businesses that are unable to fall back on large balance sheets.
The central bank said on its website on the weekend:
"Global financial conditions continue to be uncertain and unsettled with ripple effects on domestic money, forex and credit markets.
"There are indications that the global slowdown is deepening with a larger than originally expected impact on the domestic economy, particularly for the demand conditions in the medium and small industry sector and export-oriented sectors.
"In the context of these developments, further augmenting rupee and forex liquidity, strengthening credit delivery mechanisms and improving credit delivery are imperative for sustaining the growth momentum.
"Particular attention needs to be paid to maintaining the viability of sectors that contribute significantly to employment and exports."
The central bank revealed a number of other measures to boost credit to domestic industries and companies, especially small and medium enterprises.
Countries and companies around the world are reporting problems with trade finance: iron ore exporters from Australia are finding it difficult to ship to some Asian customers because the trade finance is in place.
Anecdotally, some companies will not ship iron ore (and presumably coal) if there is not a letter of credit in place,
US tech companies in particular, plus car companies in Europe, are reporting troubles with supplier credits and insurance of debts and deals.
The Reserve Bank of India more than doubled the funds it makes available for banks to refinance export credit at favourable interest rates to Rupees 220 billion, or $US 4.5 billion.
It also extended the export credit repayment window for exporters to nine months from six months.
The move is of considerable interest to Australian importers and exporters. In the past five years India has become Australia’s fastest growing export market, while imports have risen as well.
The RBI’s emergency steps are the latest in a series of interest rate cuts and other moves to ease India’s increasing liquidity crunch, as the global crisis takes hold in one of the world’s fastest-growing economies.
