Japan’s economy slides to its lowest since WW II

Japan, Asia biggest and the world's second-largest economy is facing its biggest economic crisis since World War II as new data showed that its economy shrank at an annualised pace of 12.7 per cent in the fourth quarter, the worst also since the oil crisis of 1974.

The nation's economy contracted for three quarters in a row, the first time in seven years and although Japan was bracing for bad news, the contraction surpassed the 11.6 per cent estimates of analysts.

With its economy shrinking by 3.3 per cent from the third quarter into the fourth quarter; the results were far worse than the US, which contracted by 1 per cent and the EU by 1.5 per cent.

Exports plunged by a record 13.9 per cent in the third quarter, far lower than the previous quarter, as recession in other countries made the yen appreciate while its imports rose by 2.9 per cent.

In December, its exports had plunged a record 35 per cent, the third consecutive month, amid global recession that is forcing consumers in the US, China and Europe to tighten their belts, which in turn would further push Japan into a deeper recession. (See: Japan's exports plunge 35 per cent in December)

Kaoru Yosano, Japan's economic and fiscal policy minister said that, with the country's economy dependent on exports of automobiles, machinery, and IT equipment for growth, had witnessed a sharp decline due to the global economic crisis.

Speaking at a news conference yesterday, he said "This is the worst ever crisis in the post-war era, there is no doubt about it."

"Japan alone won't be able to recover. The economy has no border," he said. "It is our responsibility to rebuild the domestic economy for other countries."

Its GDP contracted by 0.7 per cent for 2008, the first downturn in nine years as consumer spending, accounting for approx 55 per cent of its GDP, fell by 0.5 per cent due to widespread lay-offs while the main driver of Japan's economy, corporate capital spending declined sharply by 5.3 per cent.

Toyota and Honda, the two stalwarts of Japanese manufacturing, decided last month to cut down on production to combat a dramatic slump in car sales. Honda has announced it will cut 3,100 jobs in Japan and reduce domestic production by 56,000 vehicles. These decisions follow smaller rival Nissan's declaration yesterday of cutting domestic production. (See: Japanese auto makers cut back on production, reduce workforce)

This month, Panasonic Corporation, the world's largest plasma TV maker, faced with an expected $4.2 billion annual loss, said it would close 27 manufacturing units and cut about 15,000 jobs as it grapples with a stronger yen and slowing demand (See: Panasonic plans to close 27 plants, cut 15,000 jobs)  while technology giant NEC Corp. announced its plan to cut 20,000 positions worldwide starting in April. (See: Japanese major NEC to slash 20,000 positions)

Nissan Motor Co., Japan's third- largest automaker, said it will cut 20,000 jobs or 8.5 per cent of its workforce and expects a net loss of $2.91 billion for the year ending 31 March, while Toyota, Honda and Mitsubishi, all predicted annual loss. (See: Nissan joins Toyota, Honda and Mitsubishi in predicting annual loss; to slash 20,000 positions)

Japan's seasonally adjusted unemployment rate soared at the fastest rate in about 42 years at 4.4 per cent in December, reaching the highest joblessness in almost three years as a large number of companies were forced to resort to massive layoffs as their profits took a hit due to deteriorating demand.

According to the government 2.7 million people were unemployed in December, an increase of 390,000, or 16.9 per cent from the previous year.

Last month, the Japanese government opened a $16.7 billion sustenance package to companies threatened by the global financial crisis, in a move to ease the credit crunch, the dwindling economy from bankruptcies and in the wake of massive job cuts by companies.

The Japanese government for the first time in seven years announced a no growth projection in the gross domestic product and it had increased its economic stimulus plan by $255 billion while central bank cut interest rates to near zero after the yen soared.

The Bank of Japan had cut its growth forecasts, as it feels that the country's economy would contract for two full years through March 2010.

Japan's manufacturers are predicting output to fall by a further 4.7 per cent in February on fears that the economic downturn could be the longest and possibly the deepest that the country has faced in recent times.