World Recession and Japan

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Courtesy of my buddy Todd Walzer from iLand6 in Japan –This week the Nikkei reported that Japanese industry will cut IT spending 20-30% in 2009.Q3 2008 was the 2nd consecutive quarter the economy shrank, albeit by only 0.1%.The recession in Japan is less severe than in the West, for a few reasons:

1. The banks are in relatively stable shape. Following the 1990’s crisis, Japanese banks raised their Cash-to-Asset Ratio, so they have losses now but no crises.

2. Japanese companies avoid layoffs, which dampens the “juggernaut effect” of people losing jobs —-> people have less to spend –> the recession gets worse. It’s true that Sony cut 8,000 jobs (many outside Japan), Toyota is delaying a new Japanese factory, and companies are reducing contract staff, but we don’t see the end-to-end layoffs going on in the U.S.

Japan’s current account surplus fell in 2008 for the first time anyone can remember.

Of course, many economists have said this would be a good thing, but that assumed

current account balancing via an increase in consumption, not a crash in exports!

The damage to the export economy is due to the double whammy of U.S. recession

and stronger yen. The Japanese automakers are in for a rough 2009, though in better condition

than Detroit to weather the storm. Sony is crashing. Hitachi had a record profit

January-August 2008, followed by an abysmal September-December.

The “domestic economy” is not feeling the impact much. A major toy maker told me

it’s business as usual. Contents providers are doing fine, with a nice pick-up in digital signage.

Importers are benefiting from weaker foreign currency. Data security rolls ahead,

driven by new compliance regulation.

The local economy will undoubtedly hiccup as exporter woes trickle down.

The LDP government as usual is clueless, and may finally implode this time.

Japan’s recession will be shallower than the West, but lacking effective policies, it may last longer.

iLand6 provides Sales Presence services in the Japan Communications Market.

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