It’s 1987 Without Bubble in Japan as Job Losses Spur Hollowing-Out Concern

By Aki Ito - Sep 30, 2011 3:20 PM GMT+0700
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Commuters crowd a train station in Tokyo. Employers cut payrolls by 160,000 and a further 200,000 workers retired or abandoned efforts to find a job, leaving the seasonally adjusted number of employed at 59.4 million. Photographer: Toshiyuki Aizawa/Bloomberg

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Sept. 30 (Bloomberg) -- Curtis Freeze, founder of Honolulu-based Prospect Asset Management Inc., talks about Japan's economy, financial markets, and government. Freeze speaks from Tokyo with John Dawson on Bloomberg Television's "First Up." (Source: Bloomberg)

Japan’s labor force shrank last month to its smallest size since October 1987, when the nation’s stock-market benchmark was 185 percent higher and land prices were 85 percent greater than today.

Employers cut payrolls by 160,000 and a further 200,000 workers retired or abandoned efforts to find a job, leaving the seasonally adjusted number of employed at 59.4 million, the statistics bureau said today in Tokyo. Separate figures showed industrial production rose 0.8 percent from the previous month, less than all but three of 28 forecasts in a Bloomberg survey.

The data deepen concern that Japan’s recovery from the March earthquake will be stunted by manufacturers shifting operations abroad because of gains in the yen, a deterioration in consumer confidence and prospects for higher taxes at home. The challenges add to the burden of an economy already beset by a shrinking and aging population.

“We’ve seen an acceleration in the hollowing out of industry this year with the yen’s surge and the earthquake,” said Hiroshi Miyazaki, chief economist at Shinkin Asset Management Co. in Tokyo. “The government doesn’t have a sense of crisis about the yen and emerging economies are luring Japanese companies away.”

The yen traded at 76.74 as of 9:12 a.m. in London, about 1 percent from the post-World War II record high of 75.95 on Aug. 19. The Nikkei 225 Stock Average finished little changed at 8,700.29, compared with the peak of 38,915.87 when it closed out 1989, capping a four-year run when it soared almost 200 percent.

Noda’s Response

Prime Minister Yoshihiko Noda’s government on Sept. 27 said it will start implementing measures to cope with the yen’s gains, including subsidies for companies struggling to retain workers. Finance Minister Jun Azumi said today that Japan plans to bolster funds needed to intervene and lengthen monitoring of foreign-exchange market positions until the end of the year, from an initial plan to end the review this month.

“The yen staying around the high-70s could throw cold water on the Japanese economy’s recovery trend,” Azumi said at a press conference in Tokyo. “We will take bold actions when needed and we don’t rule out taking any necessary measures while closely monitoring speculative trading.”

Manufacturers including Panasonic Corp. have announced plans to shift operations overseas. Panasonic, one of the world’s largest consumer electronics companies, is moving the headquarters of its $57 billion procurement operation to Singapore from Osaka in the year starting April 2012, Masaaki Fujita, an executive in charge of the business, said this month.

Exports Disappoint

Exports and retail sales data released this month also missed analysts forecasts, casting doubt on whether gross domestic product will rebound as much as forecast this quarter. GDP is expected to grow at a 4.6 percent annual pace in the three months through September, ending three quarters of decline, according to the average forecast of 42 economists surveyed by Japan’s government-affiliated Economic Planning Association.

The jobless rate fell to 4.3 percent in August from 4.7 percent as people left the workforce, today’s report showed. Household spending decreased 4.1 percent from a year earlier, compared with the median estimate in a Bloomberg News survey for a 2.8 percent drop.

A stagnating economy has also depressed consumer sentiment, with the nation’s Economy Watchers survey showing confidence among merchants and others who deal with consumers slipping to 47.3 in August, the first drop since March.

Not Enough

“I’m worried where things will go after this year, when we’ll start to see more of an impact from the strong yen and slowing growth in the U.S.,” said Noriaki Matsuoka, an economist at Daiwa Asset Management Co. in Tokyo. Reconstruction won’t be enough to fuel a “V-shaped rebound,” he said.

Japan plans to spend a total of 19 trillion yen ($247 billion) over five years for rebuilding after the magnitude-9 temblor and tsunami that devastated the northeast coast. The nation’s ruling Democratic Party of Japan this week proposed a 9.2 trillion yen temporary tax increase and selling of state assets to help pay for the effort.

In a sign that weaker global demand is affecting other Asian markets, South Korea’s industrial production also rose less than economist estimates in August, gaining 4.8 percent from a year earlier, Statistics Korea said today. Meanwhile, a gauge of Chinese manufacturing shrank for a third month in September, the longest contraction since 2009, according to the purchasing managers’ index released by HSBC Holdings Plc and Markit Economics today.

Yen Gains

“Continuing yen strength will prompt companies to factor in a stronger yen in their business planning,” said Takahiro Sekido, a former analyst at the Bank of Japan and now a chief economist at Credit Agricole SA in Tokyo. “The biggest concern is the European debt crisis and the U.S. economy. With uncertain overseas demand,” Japan’s recovery may weaken, he said.

The International Monetary Fund predicted “severe” repercussions if Europe fails to contain its debt crisis or U.S. policy makers deadlock over a fiscal overhaul. Deepening debt woes in Europe have also put pressure on the yen’s exchange rate against its European counterpart, threatening to depress earnings at companies including Sony Corp.

To contact the reporter on this story: Aki Ito in Tokyo at aito16@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net