Strangled by the collapse in global export demand, Japan's economy shrank at its fastest rate in 35 years in the fourth quarter and shows no signs of reversing course anytime soon.
Japan's gross domestic product contracted 3.3 per cent from the previous quarter, or an annual pace of 12.7 per cent, in the October-December period, the government said Monday.
That was worse than expected and the steepest slide for Japan since after the oil shock in 1974. It is more than triple the 3.8 per cent annualized contraction in the US in the same quarter.
"There is no question that this is the worst economic crisis since the end of World War II," said Economy Minister Kaoru Yosano. "The outcome clearly shows that Japan's export-dependent economy has been severely hit."
Chief Cabinet Secretary Takeo Kawamura went further, calling the economic downturn a once-in-a-century calamity.
Rattled officials hinted they may soon call for more government steps to stem the widening damage but urged lawmakers to first give final approval to a $52.2 billion extra budget, which includes cash payouts to taxpayers.
Already, Toyota Motor Corp., Sony Corp. and a slew of other companies have announced deep job cuts and projected net losses for the fiscal year through March. The yen's appreciation, which erodes income from abroad, has only intensified the pain.
The fallout has begun to penetrate families, which are spending less amid rising unemployment and withering confidence.
Japan's economy — the world's second-largest — has now contracted for three straight quarters and is almost certainly headed for a fourth.
The first three months of the year will likely be "another horrifying quarter," said Kyohei Morita, chief economist at Barclays Capital in Tokyo, who predicts GDP to contract an annualized 10 per cent during the period.
The latest data underscore the vulnerability of Asia's export-driven economies during global downturns and point toward more cuts in jobs, production and profits in the coming months. Even demand from emerging markets, which earlier had partly offset declines in North America and Europe, began falling sharply in the fourth quarter.
For all of 2008, GDP, or the total value of the nation's goods and services, shrank 0.7 per cent — the first decline in nine years, according to the Cabinet Office.
Martin Schulz, an economist at Fujitsu Research Institute in Tokyo, said the three main pillars that lifted Japan out of the so-called "lost decade" of the 1990s had crumbled — favorable exchange rates, overseas investment and demand, and old industry such steel, cars and chemicals.
"The recovery was unsustainable," Schulz said. "It was built on a major global bubble, and now basically the economy is paying the price."
Indeed, Japan's exports plummeted a record 13.9 per cent in the fourth quarter from the previous three months, the government said. Capital expenditure — business investment in factories and equipment — fell 5.3 per cent from the previous quarter, while consumer spending slipped 0.4 per cent.
Manufacturers have been extremely quick to adjust to the deteriorating conditions. Companies in recent years have hired more short-term dispatch workers and fewer permanent employees, making it considerably easier to slim down when needed.
Last week electronics company Pioneer Corp. said it will cut 10,000 jobs globally, joining a growing list of the country's corporate giants scrambling to slash their payrolls. Sony is shedding 8,000 workers, while Nissan Motor Co. and NEC Corp. are each cutting 20,000 people.
In its latest forecast, the International Monetary Fund predicts Japan's economy will shrink 2.6 per cent this year, outpacing the 2 per cent overall decline it expects for advanced economies.
To revive the economy, Japan's parliament passed a contentious 4.8 trillion yen ($52.2 billion) extra budget in January that includes business tax credits and a cash payout of 12,000 yen ($133) per Japanese taxpayer. Prime Minister Taro Aso — who faces single-digit approval ratings — has championed the idea, saying it will stimulate sagging consumer spending.
But critics have panned the handouts as a lavish waste of public money with limited impact. The resulting political wrangling has delayed implementation of the stimulus measures, which still await Diet passage of some related bills.
Morita of Barclays Capital said Japanese policymakers tend to introduce measures to boost approval ratings rather than GDP, especially with mandated elections later this year.
"We cannot expect much from Japanese fiscal spending," he said. "But given the large negative (GDP) number, this will probably be a factor to make politicians think seriously about implementing a supplementary budget for (next fiscal year)."
Media reports over the weekend said Japan may be considering additional measures to shore up the economy with fresh spending likely to top 10 trillion yen ($109 billion).
Japan's central bank, which lowered its key interest rate to 0.1 per cent in December, has introduced various steps to try to thaw a corporate credit crunch. But there is little it can do to address the unprecedented decline in external demand.
The Bank of Japan policy board is scheduled to start a two-day meeting Wednesday.
In stock trading, the benchmark Nikkei 225 index closed down 0.38 per cent at 7,750.17. The dollar was trading at 91.68 yen, down from 91.87 late Friday.Reuse content