Consumers are buying much fewer of the gadgets and cars that Japan is so famous for. The chain reaction is very worrying - exports decline so manufacturing production slumps. Weak orders mean supply contracts. Unemployment rises, pushing consumers to spend less - so domestic demand suffers too. That’s a double blow.
Take a look at the chart below. It shows monthly trade of Japanese imports (red line) and exports (blue line) in thousand billion Yen, from 1995 to date. Exports declined by a whopping 26% in the first quarter of this year. You can see the incredibly steep decline in imports as well.
Japan’s staggering plunge in exports is killing its investment potential
Source: Reuters EcoWin
The unprecedented fall in exports has forced companies from Toyota to Hitachi to slash production, workforces and wages. Even the country’s PM Taro Aso recently acknowledged that corporate sector weakness is spreading to households.
Japan is in a fragile state and hugely reliant on exports. External demand isn’t picking up as consumers across the world stop buying big-ticket items. The country’s current budget is in deficit by approx 7% of GDP. Its economy is forecast to contract by 5% this year.
You’d do well to curb major exposure to Japanese companies. Despite being an emerging market economy, China is a much better bet and likely to pip its mature counterpart to the finish line.
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