Japan hit by worst slump in exports for 50 years

Overseas sales of cars and electronics collapse

Japan's exports fell by nearly half last month, with shipments of cars plummeting by over two thirds, plunging the world's second largest economy ever deeper into recession.

Japan recorded its largest monthly trade deficit in almost three decades, according to trade figures released yesterday, stunning economic observers and worsening the gloomy forecast for the rest of the year. Exports were down by 46 per cent in January compared with the same month last year, as sales to Asia and the West slumped. That was the steepest fall in exports recorded in Japan since 1957.

"Everything points to a recession that will be exceptionally long and deep," said Tetsuro Kato, a political economist at Tokyo's Hitotsubashi University. "I believe it could take Japan a decade to recover."

Shipments to the US tumbled by 53 per cent last month, helping to deepen Japan's January trade deficit to 952.6 billion yen (£6.8bn), the worst since records began in 1980. Exports to China, Japan's biggest trading partner, were down 45.1 per cent, while the nation's trade surplus with the European Union dived by a stunning 92.3 per cent.

Tokyo said last week that the economy has suffered its biggest contraction in 35 years, shrinking by an annualised rate of 12.7 per cent. Japan's 3.3 per cent decline in the final quarter of last year was twice as steep as the slowdown in the eurozone and three times worse than the US.

The Economy Minister, Yosano Kaoru, warned this month that Japan faces its worst economic crisis since the Second World War. "This is the worst economic crisis in the post-war era. There is no doubt about it," he said.

But some analysts cautioned against overreacting to the latest dismal economic data. "January trade figures are always bad, so we must take that into account," said Ryoji Musha, vice-chairman of Deutsche Securities in Tokyo. "Also, inventory adjustment in China is a factor as factories there downsize their production."

Mr Musha added: "Japan makes a lot of the world's basic materials and parts, so once demand returns the economy will recovery quite quickly."

However, with the global slump affecting even Japan's blue-chip exporters, few others are likely to be as optimistic. Toyota's shipments, for example, fell by 57.1 per cent from the same period last year. The car giant, which recently posted its first loss in half a century, will produce nearly 2 million fewer cars this year than last.

Nissan, Honda and Japan's other car companies have also been badly hit by the recession. Struggling Mitsubishi exported 77 per cent fewer vehicles abroad than a year ago. Domestic production of electronic goods and components, including microchips, have all been slashed as manufacturers batten down the hatches amid the global economic storm.

Japan's problems do not stop at its economy, which is now being overshadowed by political paralysis. After over half a century of almost continuous power, the Liberal Democrats are bickering and exhausted. Recent television pictures of Tokyo's incoherent Finance Minister at a February G7 meeting in Rome was the perfect image of a government that seems punch drunk and outclassed. By September, the famously pro-business party will almost certainly be out of office.

The country's stock market is also trading at levels not seen for 25 years, with the Japanese government signalling earlier this week that it is now considering how the state might intervene to prop up share prices, though it has yet to reveal what form such action might take.

Pascal Lamy, head of the World Trade Organisation, who was in Japan yesterday, warned that there would be little respite for the country until the global economy picked up. "Japan is particularly vulnerable to the downturn because trade is so central to the economy," Mr Lamy said.

The economic woes have already led to thousands of job cuts across the country. In addition to the car manufacturing sector, electronics companies have sought to downsize their workforces. Sony, for instance, has cut 8,000 jobs, while Pioneer is in the process of shedding 1,000 staff.

Japanese economists expect further disastrous data in the weeks ahead. The country's industrial output is expected to have fallen by 10 per cent last month.