Japan Exports Fall 49%, as U.S. Trade Plunges

By YUMIKO ONO and ANDREW MONAHAN TOKYO -- Japan reported a 49% fall in exports in February from a year earlier, showing the vulnerability of the world's second-largest economy, which has relied heavily on global demand for its products to drive growth. February marked the fifth consecutive month of decline and set a record for sharpest fall for the fourth straight month as demand dropped in all key markets -- the U.S., Europe and China. In January, exports sank by 46% from January 2008. Japan's flagship exporters, which just a year ago were posting record profits, are slashing hundreds of thousands of temporary workers and idling factory lines as they strive to adjust. Earlier this week, Toyota Motor Corp. said it halved global production in February amid slower demand. Honda Motor Co. and Nissan Motor Co. also cut global production by similar amounts. "Every major product for every major market is falling at a similar steep pace," said Richard Jerram, an economist with Macquarie Research in Tokyo. The export decline, announced Wednesday, has dire consequences for Japan. Big manufacturers are cutting orders from suppliers, who then must make production and job cuts of their own. As the recession spreads to the broader economy, mounting job insecurity prompts consumers to spend less, affecting the service and leisure sectors. That downward spiral was partially responsible for the 12.1% annualized fall in Japan's gross domestic product in the September-to-December period -- a sharper rate of contraction than in the U.S. or Europe. Analysts say the GDP may contract by a similar degree in the first three months of 2009. Some say Japan may be experiencing its worst recession since World War II. Weaker domestic demand and lower prices of oil and other commodities contributed to a 43% year-to-year fall in imports in February, the fourth straight month of declines. That left Japan with a trade surplus of 82.4 billion yen ($845.7 million), its first in five months. Economists had expected Japan to post a trade deficit. View Full Image European Pressphoto Agency A container ship docks at Odaiba wharf in Tokyo Bay, Japan. According to the Ministry of Finance, Japan's February exports fell by a record 49% from the previous year. "Japan's economy is going through big cuts in output, which are causing sluggishness in its domestic demand and thereby decreasing imports," said Azusa Kato, an economist at BNP Paribas Securities. Other worrying economic indicators are expected in the next week. Some economists expect Friday's core consumer-price index for February, which excludes fresh food prices, to show its first year-on-year decline since the fall of 2007. More negative figures could mean Japan has slipped back into deflation, a widespread fall in prices, which dogged the nation from 1999 to 2005. Deflation can damp economic growth by discouraging consumers from spending and companies from investing. Next week, the Bank of Japan is expected to announce the tankan survey of corporate sentiment fell sharply to levels not seen since the oil shock of the mid-1970s. Government officials, including the finance minister, have begun to say publicly that more spending is needed to help the nation recover. But Prime Minister Taro Aso, weakened by political gridlock and swooning popularity, has had difficulty getting political support for his stimulus programs. Write to Yumiko Ono at yumiko.ono@wsj.com and Andrew Monahan at andrew.monahan@dowjones.net