By: Dr. Mike Campbell
Japan’s exports are critical to her economic fortunes and the appreciation of the Yen, notably against the US Dollar, her largest trading partner, has made those exports less competitive. In a very frank statement, the government has announced that it economy, which had been slowing for months, is now at a standstill.
Over the past few months, the government had adopted a positive tone, insisting that the economy was “picking up”, but the appreciation of the Yen and the obvious consequences that attach to it are plain for all to see. The comments are the most negative to be made by the government for two years; since they were in the depths of the global financial crisis.
In global terms, the recovery is weakening, partially because many developed nations are making cuts in expenditure to tackle runaway debt problems that have finally come home to roost. This has hit Japanese exports as an additional problem; notably in the shape of declining orders from Asia.
The monthly cabinet office statement indicated that the government expects the economy to remain weak for some time to come and that a return to recession is a distinct possibility should the economic situation decline any further.
It is clear that the US government has no intention of helping to see the Yen depreciate at the moment. The weaker Dollar is good for American exporters and puts pressure on imports since they become more expensive within the domestic market. This may help domestic producers of similar goods. Indeed, mutterings have been heard in certain quarters that the US was deliberately helping to weaken the US Dollar. This brought a swift and unambiguous denial from Treasury Secretary Tim Geithner.