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Japan

December 2008

  • Japan enters recession.
  • Exporters hit by falling demand and the rising yen.
  • Economic stimulus package delayed until January.

November was an arduous month for Japanese equity markets. The Topix index fell 3.7% in yen terms, as the country officially entered recession.

The ascendant yen had a particularly negative effect on export-reliant companies. Carmakers were among the worst hit, as the slowing of the global economy caused demand to fall. Toyota’s net profit forecast for the year to end-March 2009 was slashed to around half of the previous projection. The share prices of Toyota and its rivals in the automotive industry fell steeply during the month.

The Japanese economy entered recession in mid-November, after figures revealed it shrank by 0.1% in the third quarter of 2008. This came after it had contracted by 0.9% in the previous quarter.

It was also revealed that Japanese industrial output and consumer spending have fallen heavily, as fears increased that the economic slump will be a long one. Industrial production, meanwhile, fell by 3.1% in October compared with the previous month. The drop was much larger than the market had anticipated. Companies have had to adjust production to reflect falls in international demand for their goods, with those surveyed planning the sharpest cuts in 35 years. Year-on-year consumer spending also fell in October. Again, the 3.8% drop represented a bigger decline than analysts had expected.

Meanwhile, the Japanese government said it planned to delay the legislation needed to finance its promised economic stimulus package until January. The postponement, though, was announced just as the Bank of Japan stated that economic activity was likely to slow further and that funding conditions had deteriorated. This prompted concerns that the stimulus measures, when finally implemented, would be unlikely to prevent a deep recession.

 

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Scottish Widows Investment Partnership Limited (SWIP) is registered in England and Wales, Company No. 794936. Registered Office is at 10 Fleet Place, London EC4M 7RH. Tel: 0131 655 8500.
SWIP is authorised and regulated by the Financial Services Authority and is entered on their register under number 193707 (www.fsa.gov.uk).