Japan's Collapse: Has it been hit by King-Kong?

London, UK - 3rd February 2009, 20:37 GMT

Dear ATCA Open & Philanthropia Friends

[Please note that the views presented by individual contributors are not necessarily representative of the views of ATCA, which is neutral. ATCA conducts collective Socratic dialogue on global opportunities and threats.]

The numbers coming out of Japan are no longer about degradation, but historically unprecedented destruction. If the government pointers are correct, they are no longer suggesting a recession or even a depression of the style of the 1930s but something like a massive "Reset button" with very different and far-reaching consequences. This downward spiral is much faster, much more synchronised and achieving impact equivalent to one year's worth in the 1930s on a monthly basis, month-in month-out. It is as if the whole country has been visited by an army of King-Kongs, who are busy destroying the industrial output.

Japan's industrial production fell almost 10% in December compared with November, worse than the METI (Ministry of Economy, Trade and Industry) forecast. METI has re-done its forecasts for January to a 9% drop, and February down another 5%. That knocks almost 30% output since September, putting it back, at the level of the early 1980s. It took 25 years to reach levels that have been unwound in five months. For carmakers, production may fall by around 50% from last year in 2009. There has never been data this bad for any major economy: even during The Great Depression of the 1930s. If METI's January and February industrial production data is correct, the proportions are apocalyptic. Masaaki Shirakawa, Bank of Japan Governor, recently warned, “The outlook for the Japanese economy has deteriorated dramatically and there is a high probability that it will continue to do so.”

ATCA has been conducting Socratic dialogue about the Eight Bubbles and the Quadrillion Play's black holes for a long time now. The ATCA 5000 have also been concerned that the Myth-of-Decoupling between Asia's Big Three and the West did not and does not exist. China and Japan are in many ways the same economy. For example, Japan's wonderful record of reducing energy and raw material inputs into its exports came only partly from efficiency adjustments made during the 1970s oil shocks or from eco-friendly planning, and largely from moving the manufacture wholesale to China! If the US and EU slow down drastically, there is neither Chindia (China-India) nor Japan in Asia that can keep the world economy running smoothly. They are the other half of the same coin and not autarkies! How can they go it alone?

Not only is Japan's industrial production forecast to be down almost a third year-on-year by February, the inventory to production ratio is soaring! A near 30% decline in five months would be more than half of the entire decline in US industrial production over the 3 years and nine months of the US Great Depression. Nothing in the history of major nations compares. So, for all intent and purposes, Japan is in a depression already and the army of King Kongs has not left yet! As goes Japan, so goes Chindia within Asia, because a significant export market for Japanese capital and other high-end goods is Chindia and the rest of Asia. Further, if Japan is not able to sell as much to the West as it used to, how can China or India?

After horrific figures heralding collapse, including a record 35% plunge in exports in December and serious downgrades to economic forecasts, the officials and policymakers in Japan have swung into overdrive. The government has presented a series of extraordinary measures including the news that the Bank of Japan will buy JPY 1 trn (USD 11 bn) of shares owned by financial institutions to shore up their capital, encourage them to lend and basically try to boost liquidity in the battered system. That follows increasingly desperate unconventional measures including the BoJ’s decision late January to begin buying corporate bonds, and bonds issued by Real-Estate Investment Trusts (REITs). This is unlikely to address the key issue of earning's collapse for Japanese corporations and investment trusts.

Japan's decline in output is of King-Kong proportions; and yet everyone still sees the Japanese Yen as a safe haven? How and Why? This is the paradox one must address and understand. The solution lurks within the high valuation of the Japanese Yen. Solve that conundrum and the rest follows! Don't take too long, or the markets will solve it for you!

[ENDS]

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