No belly for Aso to rub
With the latest announcement of an increase in allotted funds, the Aso government has pledged over 500 billion dollars to the package as an effort to rescue Japan’s ailing economy (BBC 2008). The Nikkei has plunged over the past few months, tipping the Japanese economy into a period of recession, and does not seem to be on a path for natural re-alignment. The falling through of the recent bailout plan for the Big Three automakers in America caused finicky investors to be even stingier in the Japanese markets than they were being before, as the Nikkei began a new plunge with the news of the Senate’s rejection of the plan (BBC 2008). The export-based Japanese industry has been gravely damaged by the global financial crisis, as the yen-dollar and yen-yuan ratio has increased, resulting in less money for exporters. As governments around the world announced bailouts for their economies, it was not clear what exactly the incapacitated Aso administration was going to do.
The recent bailout was not comprehensive enough, as the weeks after the announcement have shown. The package, although well received, did nothing to stall the Nikkei’s slow downturn and nothing to change the current Japanese trend towards recession (BBC 2008).
The first major problem in the Japanese economy is the unavoidable slowdown in the export market. Japan is an export-based nation, specializing in high-quality electronics and automobiles – two industries that have been hit particuarly hard by the recent credit crunch. As individuals start tightening the purse-strings, luxuries like an expensive new Lexus or, on a smaller scale, a new camera lens or monitor are the first things to be put on hold. Thousands of Japanese export vehicles, from Infinitis to Hondas, now occupy space in the docks of their disembarkation in America as the dealerships struggle to sell enough cars to keep a steady supply of imports flowing through (BBC 2009). Japanese automobiles also face increasing competition from American carmakers in Japan’s biggest car market (America) as the desparate Big Three slash their prices to salvage what little they can from their own financial disasters. In addition, the surging yen (relative to the US$) further depreciates any profit Japanese exporters may be making – a huge loss on an industry as large as the automotive sector.
The relatively powerful yen also bodes poorly for Japanese electronics exporters like Sony and Toshiba. Although the bulk of their products may not be as expensive as their automotive counterparts, the electronics market is one that is widely regarded as a luxury (in most aspects, at least). Penny-scrounging consumers cutting their luxuries will adversely affect electronics – indeed, a consumer may buy a cheap Chinese or Korean product rather than an expensive Japanese one, if they purchase a product at all.
Factoring all this against the Japanese government, it would be a stretch to show any sort of definitive confidence in the Aso plan to reignite the economy. However, the Japanese people have somewhat high expectations on both Aso and his Liberal Democratic Party. Indeed, the LDP provided the ever-popular Koizumi, who steered Japan out of its last recession and put it back on track to export dominance. Can Aso finally shine in the same light?
January 25, 2009 at 1:47 pm
Good Article