International | Aug 07 2008
By Greg Peel
The emergence of China in the twenty-first century often draws comparisons with a similar emergence of Japan after the Second World War. Japan grew from a defeated military machine into the manufactured goods exporter to the world, putting it on a path that now sees Toyota, for example, as the world’s leading seller of vehicles, and the Japanese economy, the second biggest in the world. The IMF calculated 2007 GDP in the US as US$13.8 trillion, Japan as US$4.4 trillion, Germany as US$3.3 trillion, and China number four with a bullet at US$3.2 trillion.
(The combined GDPs of the Eurozone registered US$16.8 trillion. The world total was US$53.8 trillion and Australia came in fourteenth at US$900 billion.)
The Japanese “economic miracle” lasted all the way from the fifties to 1990, when the bubble finally burst and the country was plunged into a decade of asset deflation and economic recession. However, Japan’s growth path was not without its ups and downs, and thus it is surprising to realise that the last six years of Japanese economic expansion actually represents the longest period of continual expansion since the War. At an average growth rate of 2.2% per annum, it was not exactly spectacular, but after a decade of darkness it was very encouraging.
But then, just when the Rising Sun was rising once more, along came the global credit crunch. Japan suffered its own banking crisis in the nineties, so when it came to loading up on US mortgage-backed securities, Japan remained cautious – but not on the sidelines. This week Japan’s biggest banking group – Mitsubishi UFJ Financial – reported a 66% drop in quarterly profits. The bank lost 16bn yen dumping toxic US CDOs and wrote down another 51bn yen in the value of mortgage-backed security investments issued by Fannie Mae and Freddie Mac.
Like every other OECD country, Japan is suffering a fallout from the credit crunch. The country’s consumers are also suffering the same rise in energy and food costs, and its export industry has copped the double-whammy of surging input costs and declining international demand. Exporters have been forced to cut output and late last month, the Ministry of Finance reported that it had cut expectations for Japan’s regional economies for the second quarter running.
Japan’s industrial production fell in June for the first time in four years, while household spending was cut for the fourth month in a row.
Early this week a business confidence survey found that 50% of the sample believed Japan was already in a recession in June, and another 15% suggested recession had begun since June, putting two-thirds of Japanese businesses in recession mode. Last night the government agreed that the economy was “deteriorating”, and for the first time acknowledged that the country’s longest post-war expansion is probably over.
Although China is rapidly catching up, Japan still remains the biggest consumer of Australia’s exports.
