3 Reasons Why Japan’s Economy Might Not Survive a US Recession
by Rebekah Manning
Japanese Markets follow US Markets straight down.
For the first time in seven years, Japan has slipped into a recession. Slowly the US economy has been taking its toll on Japan, as well as the rest of Asian financial markets, which has led to today’s 4.6% drop in the Nikkei, Japan’s stock market. It is important to understand that recessions do not happen overnight, but are due to bigger issues, many of which culminated today. Japan’s economy has also shrank for a second quarter, meaning a 6 month slowdown. Japan’s output gap, a measure of supply and demand, has been negative since July.
1. American Recessions Create International Recessions
Whether you believe there is a recession in the US or not, there is a definite slowing in the US economy which has taken its toll globally. According to the Bureau of Economic Research, via Yahoo News, “the U.S. recession had begun a year ago, in December 2007.” Recession or no recession, the US is the world’s largest consumer and American job loss and decreased consumer spending hurts globally. This means Americans can’t buy Japanese tvs, cars, toys, etc without paying a premium that they can’t afford currently.
2. Falling US Dow Means Falling Japanese Markets
The Dow falls further.
Yesterday’s 7.7% drop in the Dow Jones had a ripple affect through out Asian Financial markets. This is in part to blame for today’s early Japanese market poor performance. According to Yahoo Finance, “Global markets had rallied last week, but any nascent investor confidence quickly wilted after grim U.S. economic data sent the Dow Jones industrial average plummeting nearly 700 points — or 7.7 percent — Monday, wiping out more than half of last week’s big gains.” There are a lot of major US news announcements coming out this week, and if past performance is any indication, Japan may be looking at a very bumpy week.
3. A Strong Yen Means Less Dollars Are Spent
I know what you are saying, “How can a strong Yen be bad for Japan?” A strong Yen means that it is more costly for Americans to buy Japanese goods. This is why Toyotas are starting to cost more. Since Americans have less spending money, they can afford less Japanese goods. Less Japanese exports leads to less money coming in and a slowing of their economy. According to Yahoo News, “Japanese exporters have been hurting from the yen’s renewed appreciation, which erodes their overseas earnings. The dollar was trading at 93.54 yen from 93.18 late Monday.” Keep in mind that a few short months ago the Yen was trading at 115 Yen to the dollar. This almost 20% increase in value means goods will cost 20% more and consumers can afford less.
Japan isn’t the only Australasian country doing poorly today. Just a few months ago the Australian economy was booming, now they too are at the brink of a recession. Earlier today the Reserve Bank of Australia cut interest rates to try to flood the economy with capital. That may not be enough for Australia, as what the Asian markets really need is a strong US economy. For more information about the falling Asian markets, please check out Yahoo Finance
Tags: asian markets, japan
About the Author - Rebekah Manning
Rebekah started in the Forex industry as an intern in 2001, and worked her way up the ranks to a C-level management position. She enjoys the field of trading as well as MMA fighting, shooting ranges, and action movies.
December 3rd, 2008 at 4:51 am
Except if you live in Japan, then you can easily buy dollars now and wait for the U.S. economy to recover….
December 3rd, 2008 at 5:03 am
a quick question with regards to your third point…maybe i’m wrong here but i was under the impression that since we pay in dollars, the stronger yen erodes the japanese company’s profits. so for example: a toyota that costs 20K in the US would’ve amounted to 2.3m yen @115y/dollar but now only amounts to 1.86m yen @93.18y/dollar..
but this doesn’t mean it’s more expensive for the consumer, does it? i mean it still costs 20K here but just yields lesser profit for toyota.
or maybe i have my econ101 all mixed up here?
December 3rd, 2008 at 6:20 am
3 Reasons Japan?s Economy Might Not Survive a US Recession…
[...]For the 1st time in 7 years, Japan has slipped into a recession. Slowly the US economy has been taking its toll on Japan, which has led to today?s 4.6% drop in the Nikkei, Japan?s economy has also shrank for a second quarter, meaning 6 months of a…
December 3rd, 2008 at 7:54 am
Speaking as an American, we here in Japan are just fine. Japan has no debt to other countries. Japan’s corporations are still loyal to its employees and salaries are still relatively high. Executive salaries are capped. Banks are truly nationalized, not Henry Paulson fake-nationalized. Japanese people speak out and fight back about stolen and scammed money. Japan is increasing trade with Europe and a newer, richer Russia to make-up for losses due to American consumer inability to buy Japanese products. No, it is the U.S. which will not survive this U.S. elite engineered take-the-money-and-run.
Furthermore, as an American, I pay for my Japanese National Health Insurance! I have good insurance for the first time in my life!
If I sound like a bitter ex-patriot, that is because I am. I’ve worked between executives and the operations staff for 5 different large corporations and I’ve seen the greed of executives rob everyone blind before they tanked the company and ran. Every corporation is like Enron. They will tank your company to rob you of your pensions.
December 3rd, 2008 at 12:32 pm
It’s not just Japan that has a problem.
Look at this:
http://www.greenfaucet.com/eur.....tvia/34713
Anyone holding any European ETF should be seriously reconsidering there portfolio.
December 3rd, 2008 at 2:02 pm
Hi Arpit,
That is a great question. Toyotas wil be priced in Yen. If a Toyota costs 2.3 million Yen, it will cost this both whenthe Yen is weak and when the Yen is strong. When the Yen was at 115, Americans were paying $20k for it. When the Yen is at 95, Americans are now paying closer to $24k for the same car.
I hope that helps!
December 3rd, 2008 at 7:08 pm
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December 6th, 2008 at 2:38 pm
The United States has been a leading factor in many foreign economies. We import and export different goods all around the world. With the current recession, the United States can not make as many products as we used to, causing foreign countries to lose the quantity of many products they would buy from us. This recession also causes the people of the United States to not be able to buy products that were being bought in excess before. Many items from Japan that we would buy easily before are not being bought because they are not necessities.
Now, because of this, the companies in Japan that are main exporters to the United States will begin to fall because their products will not sell here.
As Rebekah said, Americans will have to pay more for goods from Japan as the Yen rises in value. This factor makes it even harder for Americans to buy products made in Japan.
With Americans not being able to buy Japanese products, Japanese companies will fall soon.
December 18th, 2008 at 7:27 am
Didn’t realise there was this type of information out there…