Plunging exports fuel Japan crisis fears

Japanese exports have nearly halved from a year ago, official figures showed on Wednesday, stoking fears that the world’s second largest economy is heading even deeper into recession.

The country’s dismal February trade performance was the latest in a string of bleak economic figures. It fuelled expectations that Japan was on course to suffer a steep fall in output in the first three months of 2009 that could match or even exceed the 3.2 per cent quarter-on-quarter decline recorded in the final three months of last year.

Japan, which is highly dependent on exports for growth, achieved a slim trade surplus of Y82.4bn ($844m, €624m, £583m) last month, after suffering a record deficit of more than Y950bn in January.

However, it did so only because of a record 43 per cent drop in imports to Y3,443bn. That fall underscored the nation’s fast diminishing appetite for raw materials and weakening domestic consumer demand.

Exports fell 49.4 per cent year on year to Y3,525bn, their worst performance since Japan began keeping comparable trade statistics in 1980.

“The fall in imports, in part, reflects lower commodity prices and the impact of the stronger yen. But it also reflects collapsing domestic demand,” Daiwa Securities said.

Matt Robinson, an economist at Moody’s Economy.com, said that US and European demand was likely to remain subdued for some time.

“It is difficult to see when and how the appalling trade results will start improving,” Mr Robinson wrote in a research note.

“This will weigh heavily on GDP growth during the global recovery period, meaning Japan could lag the rest of the world considerably in recovering to its potential growth rate.”

Japanese officials fret that deepening recessions in key markets could lead to protectionist measures that would further hobble exporters already hampered by the strength of the yen.

To ease the slump, Tokyo is preparing to try to boost domestic demand. Taro Aso, prime minister, has ordered officials to draw up a fiscal stimulus package for enactment early in the fiscal year starting next month.

Kaoru Yosano, minister for finance and economic policy, said at the weekend that calls for the package to be worth about Y20,000bn appeared reasonable.

The government has already implemented or approved fiscal stimulus measures equivalent to nearly 2 per cent of annual GDP and officials worry about the effect of greater spending on Japan’s already extraordinary debt burden.

However, critics say the government and Bank of Japan must take more aggressive steps to combat a slump of historic proportions.

With additional reporting by Michiyo Nakamoto