from Follow the Money

More bad news from Japan

February 25, 2009

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Blog posts represent the views of CFR fellows and staff and not those of CFR, which takes no institutional positions.

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Japan’s January exports are down 46% y/y. The Wall Street Journal:

Japan’s trade deficit widened to its biggest level on record in January, as a global economic downturn sapped overseas demand for Japanese goods and caused exports to plunge 45.7%, the fastest decline ever. The data indicate that Japan’s economy, which in past recessions relied on exports to recover, won’t be supported by overseas demand and, if anything, will continue to suffer from the collapse in that demand. Analysts say there are few signs exports will pick up any time soon.

Japan’s January trade deficit came to ¥952.6 billion ($9.84 billion) in January, the Ministry of Finance said Wednesday. While the figure was better than analysts’ consensus forecast of ¥1.15 trillion deficit, it was still the biggest on record. It was also the fourth straight month Japan posted a trade deficit.

I never thought that a big fall in commodity prices would coincide with a big fall in Japan’s trade surplus. But right now Japan’s manufactured exports are falling even faster than Japan’s commodity-heavy import bill.

China’s 17.5% y/y fall in its January exports is far smaller than the falls in the exports of other major Asian trading powers. Japan is down 46%. Korea, 33%. Taiwan, 44%.

That strikes me as one of the key puzzle’s of today’s global economy. One potential explanation is that China is taking market share. One potential explanation is that the big fall in China’s exports is in the pipeline, as China is the last stop in Asia’s assembly chain. And one potential explanation is that a significant domestic downturn in China is adding to the downturn in the exports of other Asian economies.

Update: Jon Anderson of UBS argues that China’s electronics exports have collapsed in line with the exports of the rest of Asia. However, China’s low-tech exports -- shoes, textiles, toys, furniture -- have held up well. To put it just a bit differently, he argues that a lot of the press coverage about the fall in China’s low-end exports and the resulting fall in employment has the story wrong. China’s low-end, labor-intensive exports are doing (relatively) well compared to China’s electronics assembly business. He also argues that the fall in investment in Chinese real estate and related materials has added to the woes of other Asian exporters.

And Rachel Ziemba recommends the analysis of United Overseas Bank. Among other things, they noted that the credit/ housing/ consumption bubble in the West pulled Asian exports well above their long-term trend. I rather suspect artificially weak exchange rates also played a role, especially vis-a-vis Europe. The current export fall consequently represents a reversion to a more normal pattern of export growth. The current sharp fall in trade isn’t so much deglobalization as the end of a period of artificial globalization, an era where a lot of hidden subsidies -- whether undervalued exchange rates in the East or the bankers’ put in the West -- pushed both credit and import demand to levels that could not be sustained. But I am moving well beyond the actual analysis in the UOB piece -- and into a set of topics that probably warrant a post of their own.

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