Japan's Economic Crash as Exports Halve

By: Money_Morning

Jason Simpkins writes: Japan's exports were cut nearly in half last month as the global downturn crushed demand for the country's electronics and automobiles, a development that increases the odds that the Japanese yen could be poised for a tumble.

Japanese exports fell by 45.7% in January from a year ago - the steepest decline since 1957 - as exports to three of Japan's biggest overseas markets fell by record levels. Exports to the United States fell by 52.9%, exports to Europe declined by 47.4%, and exports to Asia dropped by 46.7%, Japan's Ministry of Finance reported.

The sharp drop in exports has had a crushing impact on Japan's trade deficit, which grew for a fourth straight month to a record $9.84 billion (¥952.6 billion). But the impact on the nation's leading corporations has been even more devastating.&

Many Japanese blue chips, such as Toyota Motor Corp. (ADR: TM ) and Sony Corp. ( SNE ), have been saddled with plummeting profits and forced to reduce capital expenditure and employment.

“ The pressure on companies to cut jobs and investment is rising and that will make the recession deep and protracted ,” Yasuhide Yajima, a senior economist at NLI Research Institute, told The New York Times .

While automakers General Motors Corp. ( GM ) and Chrysler LLC have been emasculated by rising unemployment and slumping confidence in the United States, Japanese carmakers are faring little better. Japan's auto exports, which account for 20% of all the country's exports, plunged 66% from last year.

Toyota, the world's biggest automaker, said earlier this month that it would likely post a $4.9 billion (450 billion yen) operating loss for the year ending March. The company has never before posted an annual loss.

Toyota said earlier this month that it would cut pay for factory executives and eliminate bonuses for all salaried production unit staff. The company has also created an optional program for assembly workers who wish to leave voluntarily and offer voluntary buyouts to plant workers in North America.

Toyota has slashed global production by 43% last month, the most since 1987.

Meanwhile Sony posted a loss of $19.9 million (17.96 billion yen) for its fiscal third quarter ended Dec. 31 , with net profit falling 95%. The company has forecast an annual operating loss of $2.9 billion.

Japan's gross domestic product (GDP) shrank at an annual 12.7% pace in the fourth quarter of 2008, and the unemployment rate jumped half a point to 4.4% in December.

“My friends tell me that factories in the normally highly industrialized Osaka area have shifted to 15-day-a-month production schedules , and many salary men (Japan's iconic office superheroes) are being encouraged to seek ‘ arubaito ‘ - or part-time work - to make ends meet,” said Money Morning Investment Director Keith Fitz-Gerald. “And those are the people who are still fortunate to have jobs.”

Shorting the Yen

In addition a dearth of global demand for its products, Japan has also been plagued by a rising yen, which has made its products more expensive to foreign countries. However, the yen has quickly reversed course with deterioration of Japan's economy.

The yen has tumbled 6.4% against the dollar this year , according to Bloomberg News . Last year, bolstered by its safe haven status, the currency rose the most of 171 currencies tracked by Bloomberg , climbing 23% versus the dollar and 29% against the euro. The yen has traditionally been viewed as one of the world's “safe haven” currencies.

“With Japan's trade data deteriorating sharply now, the Japanese yen is finally following suit,” Mansoor Mohi-Uddin, chief currency strategist at UBS AG ( UBS ) wrote in a note to clients yesterday (Wednesday). “Japan's currency potentially has a lot further to slide if investors stop perceiving the yen as a safe haven and trade the currency instead on Japan's worsening export numbers.”

Bob Parker, who helps oversee $600 billion as chairman of Credit Suisse Asset Management (ADR: CS ) in London, told Bloomberg that there's a “reasonable probability of a breakout” that will drive the yen down 3% to 100 per dollar.

“That's why shorting the yen may wind up being one of the most fundamentally successful investment choices we can make in today's mad markets,” said Money Morning 's Fitz-Gerald.

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