Bleak outlook persists for Japan

Exporters continue to suffer as the global economy slows

The Japanese government has restated its gloomy outlook for the country's economy, as figures revealed the country's all-important export trade has slumped.

The quarterly economic report, published by the Cabinet Office and prepared before this week's terrorist attack on New York and Washington, paints a bleak picture and warns that the global slowdown means more pain ahead.

"The economy continues to deteriorate," the report said, in words almost unchanged from the last survey three months ago.

"The outlook presents worrisome factors, such as a further slowdown in the global economy and the high level of the inventories-to-shipments ratio."

Concerns mount

The gloom was deepened by comments from the head of a party in Japan's ruling coalition, who said that the government needed to act fast in the wake of the New York and Washington attacks to avoid the economy at home and abroad spiralling downwards.

"I think conditions underlying economic policy have drastically changed after the US terrorist attack, which I believe will push Japan into a deflationary spiral and the world economy into synchronised recession," said New Komei party secretary-general Tetsuzo Fuyushiba.

The government has to be prepared to boost spending beyond what it has agreed and accelerate radical action to help the ailing economy, he said.

Decline deepens

The Cabinet Office report was released barely hours after data showed that Japan's current account surplus was 28.2% lower in July than a year before.

Japan's current account surplus, which represents the difference between a country's income from foreign sources and the amount of foreign currency it pays out, has now declined for eight successive months.

A further indication of the country's declining advantage in international trade was revealed in an official report on Thursday showing that Japan's trade surplus plunged 50.2% to 579.8bn yen ($4.85 billion) in July.

The slump was blamed largely on a downturn in exports of hi-tech equipment.

The reports come a week after figures showed that Japan's economy shrank 0.8% in the three months to June.

Hooked on exports

The Japanese economy has become ever more dependent on exports as domestic spending has slowed down over the past decade.

Praying for a recovery

With prices steady, and often declining, Japanese consumers have tended to save rather than spend on goods which may be cheaper in the future.

The threat of unemployment, now topping 5% in a country where the customary level has been below 2%, has also reinforced the saving habit.

The threat is now that Japan will show a further contraction, pushing it into its fourth recession in a decade.

Impact yet to be felt

The slide in the current account surplus to 775.6bn yen ($6.46bn) was still healthier than some economist had feared.

But that could not hide the essential message - that a weakening yen, coupled with the shift of manufacturing to cheaper Asian countries and the continuing weight of bad debt, means Japan is still firmly in the doldrums.

Higher oil prices, up 10% this year, have also weighed on an economy which is one of the world's largest crude importers.

And things are likely to get worse with the added impact of the weight on the world economy of the attacks on the US.

"The recovery in trade depends on the US economy," said Kenji Arata, an economist at MCM Asia-Pacific.

"I thought it would recover this year, but because of what happened two days ago this trend is likely to continue until next year."