Japan's Economy Stumbles - Analyst Blog

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A strong yen, Thai floods, troubles in Europe and the overall weakness across the world economy have impacted Japan. The country, which banks on export dynamism has seen its overseas trade take a beating in recent times. November exports were 5.2 trillion yen ($67 billion) falling 4.5% year on year. Imports, on the other hand, have risen 11.4% year on year.

After being felled by the earthquake and tsunami earlier in the year, Japan was staging a patchy recovery. Third quarter (July-September) growth was 1.5% after two quarters of contraction. According to the International Monetary Fund ( IMF ), Japan is expected to see GDP contract in 2011. However, the IMF projects Japan's GDP to grow 2.3% in 2012.

The floods in Thailand and a strong yen have impacted automakers like Honda Motor Co., Ltd. ( HMC ) and Toyota Motor Corp. ( TM ). While the floods have disrupted their vendor chains, the strong currency has made their products expensive apart from injecting an unfavorable translation effect. Output suffered, as these companies had to temporarily abandon some of their production lines. Toyota has more than halved its fiscal 2012 earnings in its latest forecast compared to the previous forecast.

Incidentally, Japan tried to rein in the yen in October, after it had reached its peak since the Second World War, but to little avail. The country also faces the challenge of high public debt. Although, Japanese bond yields are currently low as investments seek safe harbors particularly in troubled times, further increases in debt could raise yields.

Europe happens to be the least common denominator in the world's economic anguish. All the major economies from the east to west appear to be hamstrung by the crisis that is confronting the continent. The IMF chief, Christine Lagarde echoed this moment of crisis in her comment recently: "The storm in the Euro area casts a long shadow over the entire global economy."

IMF forecasts a slower global growth rate of 4% for 2011 and 2012. The developed countries will grow even slower at 1.5-2%. The crisis appears to be spinning out of control. It will extract a huge economic and social cost unless Europe and the world are able to pull off a turnaround.

HONDA MOTOR ( HMC ): Free Stock Analysis Report

TOYOTA MOTOR CP ( TM ): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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