For the first time in seven years, Japan has slipped into a recession. Slowly the US economy has been taking its toll on Japan, as well as the rest of Asian financial markets, which has led to today’s 4.6% drop in the Nikkei, Japan’s stock market. It is important to understand that recessions do not happen overnight, but are due to bigger issues, many of which culminated today. Japan’s economy has also shrank for a second quarter, meaning a 6 month slowdown. Japan’s output gap, a measure of supply and demand, has been negative since July.

1. American Recessions Create International Recessions

Whether you believe there is a recession in the US or not, there is a definite slowing in the US economy which has taken its toll globally. According to the Bureau of Economic Research, via Yahoo News, “the U.S. recession had begun a year ago, in December 2007.” Recession or no recession, the US is the world’s largest consumer and American job loss and decreased consumer spending hurts globally. This means Americans can’t buy Japanese tvs, cars, toys, etc without paying a premium that they can’t afford currently.

2. Falling US Dow Means Falling Japanese Markets



Yesterday’s 7.7% drop in the Dow Jones had a ripple affect through out Asian Financial markets. This is in part to blame for today’s early Japanese market poor performance. According to Yahoo Finance, “Global markets had rallied last week, but any nascent investor confidence quickly wilted after grim U.S. economic data sent the Dow Jones industrial average plummeting nearly 700 points — or 7.7 percent — Monday, wiping out more than half of last week’s big gains.” There are a lot of major US news announcements coming out this week, and if past performance is any indication, Japan may be looking at a very bumpy week.

3. A Strong Yen Means Less Dollars Are Spent

I know what you are saying, “How can a strong Yen be bad for Japan?” A strong Yen means that it is more costly for Americans to buy Japanese goods. This is why Toyotas are starting to cost more. Since Americans have less spending money, they can afford less Japanese goods. Less Japanese exports leads to less money coming in and a slowing of their economy. According to Yahoo News, “Japanese exporters have been hurting from the yen’s renewed appreciation, which erodes their overseas earnings. The dollar was trading at 93.54 yen from 93.18 late Monday.” Keep in mind that a few short months ago the Yen was trading at 115 Yen to the dollar. This almost 20% increase in value means goods will cost 20% more and consumers can afford less.

Japan isn’t the only Australasian country doing poorly today. Just a few months ago the Australian economy was booming, now they too are at the brink of a recession. Earlier today the Reserve Bank of Australia cut interest rates to try to flood the economy with capital. That may not be enough for Australia, as what the Asian markets really need is a strong US economy. For more information about the falling Asian markets, please check out Yahoo Finance For additional currency trading news please visit our blog at Online Forex Trading.

Tags: asian markets, japan

This entry was posted on Tuesday, December 2nd, 2008 at 3:11 am and is filed under Currency Trading, Discussion, Japanese Yen. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.