Japan’s exports fell the most on record in November, as global demand for cars and electronics collapsed, suggesting that more factory shutdowns and job cuts are likely as the recession deepens. Exports fell 26.7 percent from a year earlier, according to data from the Finance Ministry today (Monday). This was thus the largest fall since the data was first published in 1980.

Exports to the U.S. were down 34 percent and sales to China fell the most in 13 years, helping explain why the Bank of Japan lowered its key interest rate to 0.1 percent last week. Exports to Europe slid 31 percent, the second-biggest drop ever.The yen’s surge to a 13-year high is only making exporters problems worse, and the possibility of government intervention in the currency markets clearly exists.

Novembers data showed the global recession is now spreading to those emerging markets that had helped prop-up Japanese exports as demand from the U.S. and Europe weakened. Exports to Asia fell 27 percent, the most in 22 years, while shipments to China, Japan’s largest trading partner, were down 25 percent, the steepest decline since 1995. Even sales to Russia were down by 6.7% (following a 71% rise in September) revealing the sharpness of the downturn in that country.

Imports were down 14.4 percent, making for their first decline in 14 months, and there was thus a trade deficit of 223.4 billion yen ($2.5 billion), the third such deficit in the last four months.

Tibor Falls Again

And those of you who are up to date on this earlier post of mine on quantitative easing in Japan may be interested to note that the Tokyo three-month interbank offered rate, or Tibor, was down almost 11 basis points today, the biggest single day drop in a decade, to 0.796 percent, following the decision last Friday of the Bank of Japan to cut its benchmark rate and examine new ways of injecting liquidity into the financial system. So at the present point in time the policy is achieving its most direct objective, of course whether or not this will then succeed in stimulating the economy is another question entirely.

Japanese bonds were up generally today (and yields down) following the BoJ decision to start increasing its purchases (and extend the range of bonds purchased) and as a result the objective of flattening the yield curve seems to be being achieved. Short-dated JGBs gained on the BOJ’s decision to bring interest rates closer to zero on Friday, while longer-dated bonds advanced on the central bank’s move to increase the amount of JGBs it buys outright from the market to 1.4 trillion yen per month from 1.2 trillion yen as part of its easing initiative.

The BOJ’s decision to include 15-year floating rate JGBs, 10-year inflation-linked bonds and 30-year issues seems to have been a positive surprise for the market and encouraged the yield curve to flatten. The two-year yield dropped 2 basis points to 0.400 percent. The five-year yield declined 2 basis points to 0.735 percent, while he 20-year yield fell 5.5 basis points to 1.860 percent.

Last 5 posts by Edward Hugh

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