Economic Activity in Japan Speeds Downhill in Q4

Kazuo Momma, head of Research and Statistics at the Bank of Japan, commented in a recent speech that the Japanese economy may have declined at an "unimaginable speed" in the fourth quarter of last year. Estimates of a seasonally adjusted annual rate of decline as large as 12% are not uncommon. (The official estimate of GDP in the fourth quarter of 2008 is scheduled to be released on February 16th.

Among the data for the fourth quarter that are now available, the export sector shows a very speedy decline. Exports were down 8% in October from a year ago, 27% in November and 35% in December, as shown in the first chart. While most countries saw their exports decline with the fall in world demand, a sharp rise in the yen exacerbated the picture for Japan. The J.P. Morgan Broad Nominal Trade-Weighted Exchange Rate for Japan is compared with those of the Euro Area and the United States in the second chart. The rise in Japan's trade weighted exchange rate relative to the others since September stands out.

The Economy Watchers, who monitor household and corporate activity, published their January report today. While it show some improvement in January, the diffusion indexes for both the households and corporations were at their all time low levels in the fourth quarter of 2008 as shown in the third chart. The January diffusion indexes are still very low at 19.2% for corporations and 24.2% for households.