Japan Exports Plunge Record 27% as Recession Deepens

By Toru Fujioka

Dec. 22 (Bloomberg) -- Japan’s exports plunged the most on record in November as global demand for cars and electronics collapsed, signaling more factory shutdowns and job cuts are likely as the recession deepens.

Exports fell 26.7 percent from a year earlier, the Finance Ministry said today in Tokyo. Economists surveyed by Bloomberg News predicted a 22.3 percent decline. The drop was the sharpest since comparable data were made available in 1980.

The Bank of Japan lowered its benchmark interest rate to 0.1 percent last week after business sentiment dropped the most since 1975 and the yen surged to a 13-year high against the dollar. Honda Motor Co. said last week that it may shift manufacturing overseas if the currency strengthens further.

“Japan’s export crash is finally upon us, and this is the worst thing that could happen,” said Yoshiki Shinke, a senior economist at Dai-Ichi Life Research Institute in Tokyo. “The recession will be very severe as companies adjust investment, production and labor.”

The yen traded at 89.70 per dollar as of 9:35 a.m. in Tokyo from 89.50 before the report was published and 87.14 on Dec. 17, the strongest since 1995. The Nikkei 225 Stock Average edged 0.6 percent higher after the U.S. government agreed to provide General Motors Corp. and Chrysler LLC with emergency loans.

Gross domestic product shrank in the past two quarters, sending the world’s second-largest economy into the first recession since 2001. The government last week forecast zero growth for the year starting April 1.

Toyota, Sony

Honda, Toyota Motor Corp. and Sony Corp. are among the companies that are shedding thousands of workers and closing production lines as profits dwindle. Car exports slid 32 percent last month, the most ever, and semiconductors slumped 29 percent, the ministry said.

Today’s report showed the global recession is spreading to the emerging markets that propped up exports earlier this year as demand from the U.S. and Europe evaporated. Exports to Asia fell 27 percent, the most since 1986, after the first decline in six years in October. Shipments to China, Japan’s largest trading partner, fell 25 percent, the steepest drop in 13 years.

“There are no markets that can make up for the drop in demand for Japanese-made goods,” Dai-Ichi Life’s Shinke said.

Exports to the U.S. tumbled a record 34 percent, and those to Europe slid 31 percent, the second-most ever.

Imports fell 14.4 percent, the first decline in 14 months, as oil costs eased and the yen gained. That wasn’t enough to prevent a trade deficit of 223.4 billion yen (2.5 billion), the third shortfall in four months.

Yen’s Damage

The yen strengthened 25 percent against the dollar this year as the global financial crisis prompted investors to sell riskier assets purchased with money borrowed in the currency.

Honda President Takeo Fukui last week said the government should take action to halt the yen’s rise. Every 1 yen gain against the dollar cuts Honda’s annual operating profit by 18 billion yen ($201 million), according to the automaker. About 90 percent of Honda’s revenue comes from overseas.

Companies are also struggling to obtain funding as the market turmoil dissuades investors from buying corporate debt. To help businesses get financing, the Bank of Japan last week decided to buy commercial paper for the first time.

Sales at home are unlikely to make up for the collapse in demand from abroad. Households, whose confidence is at a record low, pared spending in each of the eight months to October as wage growth stagnated and job prospects worsened.

The Finance Ministry last week submitted an extra budget for the year ending March that includes 2 trillion yen in cash handouts for households as Prime Minister Taro Aso tries to spur spending. That may be too little, too late, economists say.

“Japan’s economy has never weaned itself off of the overbearing reliance on exports, and especially to the U.S.,” said Kirby Daley, senior strategist and head of capital introductions at Newedge Group. “Japan did nothing to prepare itself” for the collapse in demand from abroad.

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net