Japan Exports Nearly Halve in Deepening Recession

Japan's exports nearly halved in January from a year earlier, pushing its trade deficit to the biggest on record, in further evidence that the global financial crisis is paralyzing the world's second-largest economy.

AP

Exports to Asia slumped at a record pace as manufacturing within Asia, which had thrived on robust global growth until last year, slumped as Western consumers curtail their spending.

"Exports to Asia, particularly to China, are tumbling at about the same pace as shipments to the United States, signaling that even China's economy may be shrinking," said Takeshi Minami, chief economist at Norinchukin Research Institute. "We don't see any signs of a pickup in the Japanese economy in the near term. The economy will gradually worsen further."

Exports plunged a record 45.7 percent in January from a year earlier, Ministry of Finance data showed on Wednesday, roughly matching a median market forecast. The month was affected by the Lunar New Year, during which some Asian export markets were closed for several days.

Exports to Asia sank 46.7 percent, the fourth straight month of decline, with shipments to China falling 45.1 percent.

Many Japanese companies ship automobile and consumer electronics parts to assembly lines in Asia, from which final products are shipped to countries across the globe.

A collapse in global demand since late last year, which caught most manufacturers off guard, has led to a sharp increase in inventories and forced many leading Japanese companies to slash production at an unprecedented pace.

Japanese industrial output is expected to have fallen 10 percent in January, a Reuters poll shows, an even deeper fall than that seen in December.

The dismal export figures point to further production cuts in coming months as companies wait for inventories of unsold goods to clear.

"The data suggest both domestic and external demand are extremely weak. Given that automakers will cut production, we can expect significant declines in exports for the next few months," said Satoru Ogasawara, an economist at Credit Suisse in Tokyo.

"The ability to rely on external demand has deteriorated, so unless there's a pickup in domestic demand, there will be downside risks to the economy."

The deepening recession in Japan, and policy paralysis as an unpopular government struggles ahead of an election this year, are feeding a slide in the yen, which hit a three-month low against the dollar on Tuesday. The yen stood at 96.70 to the dollar on Wednesday.

The Nikkei 225 Average gained 1.5 percent on Wednesday as a media report that the Japanese government may buy stocks from the market soothed jittery investors and a weaker yen boosted exporters.

Shrinking exports pushed Japan's trade deficit to a record 952.6 billion yen, in an export-oriented country where sales of major brands from the autos, technology and other manufacturing sectors had been major drivers of growth in the past.

The previous record was the 824.8 billion yen deficit set in January 1980, in the wake of the second Middle East oil crisis. Economists had forecast a deficit of 1.1295 trillion yen.

The trade balance has been in the red for four straight months, the longest such sequence in nearly three decades.

Imports fell 31.7 percent, more than an expected 28.2 percent decline, marking a third consecutive month of drops from a year earlier due to falls in oil prices and a rise in the yen.

More From CNBC.com

• Citigroup May Sell Japan Investment Bank
• Japan Considers Stock Buying as Market Slides
• Could US Have Worse 'Lost Decade' Than Japan?
• More Asia Pacific News

Plunging exports pushed the Japanese economy into its deepest contraction in about 35 years in the final quarter of last year.

It shrank 3.3 percent in the quarter, with the fall in net exports accounting for 3.0 percentage points of that contraction.

The sharp deterioration has prompted big exporters to cut jobs and threatened their small suppliers, raising worries that already fragile consumption could sputter even more.

Many economists expect the economy to keep shrinking well into this year and that may yet prove overly optimistic.

In the United States, a key export market for Japan, Federal Reserve Chairman Ben Bernanke warned on Tuesday the severe U.S. recession could drag into next year.

Weakening demand for Japanese goods such as cars and electronic parts has spread to emerging economies including China that had previously offset falling exports to the United States and Europe.

Copyright 2009 Reuters. Click for restrictions.