By Michiyo Nakamoto in Tokyo
Published: March 9 2009 02:07 | Last updated: March 9 2009 19:06
Japan’s stock market tumbled to a 26-year low on Monday as official figures showing a record current account deficit stoked fears of a deepening recession in the world’s second-biggest economy.
The sharp deterioration in Japan’s current account in January reflected the dire impact of plunging global demand and a stronger yen on its export-dependent economy. Lower interest payments hit the country’s overseas income too.
The country’s first deficit since 1996, at Y172.8bn ($1.75bn), was much larger than the Y15.3bn forecast by economists and the biggest since the government started compiling comparable data in 1985.
Shrinking demand in all of Japan’s leading export markets pushed its trade deficit to a record Y952.6bn in January. As recently as 2007, Japan posted a record annual current account surplus of Y24,800bn.
Net overseas investment income declined 31 per cent, highlighting the damage from lower interest rates, the strong yen and slower markets overseas.
A country’s current account position reflects the gap between exports and imports, the difference between income earned on foreign assets and that paid to the foreign owners of domestic assets and the balance of cross-border transfers of money such as remittances. The trade position usually dominates current account movements for most advanced economies.
The mounting economic gloom sent Japanese share prices tumbling on Monday and the benchmark Nikkei average closed at a 26-year low of 7,086.03.
“Japan is over-dependent on exports and as a result, even though it was not at the epicentre of the subprime problem, it has been reeling from the impact [of the global crisis], and its growth is the weakest among developed nations,” said Hiroshi Watanabe, economist at Daiwa Research Institute in Tokyo.
Japan is not alone in seeing its exports suffer as a result of the global economic downturn. Beijing announced on Monday that it would reduce all export taxes to zero and provide more financial support for ailing exporters in an effort to increase its share of global trade during the crisis.
Chinese exports suffered a 17.5 per cent drop in January.
The deep downturn in US demand in particular has led to a rash of job cuts and factory closures in Japan as many of the country’s largest employers have seen their revenues cut. Toyota expects its first loss in 59 years while Panasonic, Japan’s largest consumer electronics group, is closing domestic factories.
Corporate bankruptcies in February rose 10.4 per cent year-on-year, in the ninth straight month of increases, Tokyo Shoko Research, an independent group, said on Monday.
Copyright The Financial Times Limited 2009