The chart at the top of this blog entry shows a quite stunning collapse in Japanese manufacturing output. Production contracted by nearly 10 per cent in the final weeks of 2008 and this steep decline is a reflection of a darkening economic crisis for the world’s second biggest economy. Exports to China have slumped, unemployment is starting to spike higher once more. And - critically - price deflation is making an unwelcome reappearance.Many economists refer to Japan’s lost decade when real GDP growth was persistently weak from the early 1990s onwards leading to a sustained rise in unemployment. Japan looked to have engineered a recovery around the turn of the decade, helped by a surge in exports to the booming far-east Asian economies. But the momentum is fast disappearing from the Japanese economy as our chart presentation available below makes clear. Japan officially entered a new recession in November 2007 according to the government.

The Times reports today that

“A “triple witching” of terrible economic figures has painted a dire picture of Japan’s economy as the country battles soaring unemployment, plunging exports and the return of its most dreaded foe - deflation. The figures come as factories across Japan are shedding jobs and slashing operating times: even the largest companies like Toyota and Honda have been forced to suspend plants for weeks at a time.”

The Telegraph talks of a perfect storm for the Japanese economy.

Presentation Japan_in_Trouble.ppt