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Wednesday, 28 November, 2001, 11:57 GMT
More retail misery for Japan
Unemployed people in Japan
Pessimists say unemployment is still rising
Another bleak day for Japan's economy was marked by yet another European retailer pulling the plug on its operations in the country, and by the collapse of the fourth major Japanese company in a month.

The French luxury goods group LVMH axed its Sephora units, just as the Japanese government reported a 4.9% fall in retail sales during the past year.

People line up to buy tickets in Japan's annual year-end lottery
The queues have been massive as people have lined up to buy tickets in Japan's annual year-end lottery
"The continuing economic downturn caused us to re-evaluate our expansion plans, and ultimately to close down our existing stores," said Sephora president Jeff Daggett.

Fears that company failures are accelerating were further fuelled by the bankruptcy of Niigata Engineering; the 12th listed company to fail this year.

And the government's ability to sort out the mess and contain the nation's ballooning debts was thrown further into doubt as the credit ratings agency Standard & Poor's (S&P) slashed Japan's debt ratings to AA - an indication that it is more risky to lend money to Japan than to a range of leading international banks or multinational corporations.

Retail sales fall

The sharp dip in retail spending could prove disastrous for the battered Japanese economy, not least because this time the statistics revealed a fall in sales of all categories of goods, including clothing, cars, household appliances and food.

"You have to ask if it is possible for Japan to have a really steep recession," said Princeton University economics and international affairs professor Paul Krugman.

"I don't know how fast it can go, but we're looking at a scenario that looks more like 1931 than anything we've seen in the post-war period." he said, referring to the worldwide Great Depression of the 1930s.

Consumer confidence

Personal consumption accounts for about two thirds of the country's output, or gross domestic product (GDP).

Until recently, the relative health of the consumer markets had prevented the ailing economy from sliding even deeper.

Crown Princess Masako's pregnancy has aided sales of baby clothes in Japan.
This prop could soon vanish as even falling prices and zero per cent interest rates are failing to bolster spending by Japan's workers.

Many of them fear for their jobs after the country's unemployment rate reached a record high of 5.3% in September.

The Japanese people are seeing their earnings fall, along with their willingness and power to spend, amidst speculation that the jobless figure for October could be even worse.

Mounting debts

With unemployment pushed higher by indebted companies going to the wall, much attention has been removed from the beleaguered Japanese banks which are already heavily burdened by the failure of troubled firms to repay their loans.

But the banks' mounting debts, along with the government's own sovereign debts were key reasons why S&P downgraded the country's debt rating.

The country's debts are set to rise from 130% of GDP to 175% of GDP by 2005, predicted S&P.

"Japan's sovereign credit rating could be downgraded further if the government's debt dynamics continue to worsen," S&P said.

See also:

27 Nov 01 | Business
Japan moves to shrink public sector
26 Nov 01 | Business
Bad loans mount at Japan's banks
30 Oct 01 | Business
Shock rise in Japanese jobless
19 Nov 01 | Business
Japan's consumers stop spending
09 Nov 01 | Business
Japan admits economy is shrinking
08 Nov 01 | Business
Japan mulls boosting inflation
31 Oct 01 | Business
Japan's fading economy
16 Oct 01 | Business
Japan sets extra budget
10 Oct 01 | Business
Japan launches economy drive
01 Oct 01 | Business
Survey raises Japan recession fears
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