Japan’s industry struggles in the face of weak export markets

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The land of the rising sun, Japan, seems to be waiting for eternally elusive signs of economic sunshine right now with plenty of worrying data emerging in the last few days. After a 0.7% growth print in Japan’s second quarter GDP, driven by Tsunami reconstruction spending, concerns are mounting about the health of the economy.

Japanese industrial production fell 1.3% in August from a month earlier, much larger than the 0.4% decline expected and the fourth fall in the last five months. Deflation continues to be a significant concern with the core CPI (consumer price index) moving down 0.3% in August from a year earlier, the fourth straight month of decline.

By the late 1980s, Japan’s economy was booming with GDP growth of 7.1% as its electronics and auto industries benefitted from export demand and cheap labour. But the “lost decade” of the 1990’s proved the turning point with the bursting of a huge property bubble and rising costs which made the country’s exports less competitive than its Asian neighbours, notably China’s.

Now the government is faced with an ageing population, strong currency as well as enormous levels of government debt. With national debt standing at 235% of gross domestic product, Japan is the world’s most indebted country, though 90% of the debt is held domestically. Add to that the effects of the March 2011 earthquake/Tsunami and Japanese politicians and investors have plenty to worry about with its usual export markets in Europe proving to be very weak right now.

Contrarian Investor UK

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