Raw Japan

Forex markets have not followed fundamentals for a long while so perhaps it is no surprise that the yen is holding near 13-year highs against the dollar, despite new figures showing exports falling off a cliff.

December figures out today show Japanese exports plunged 35 percent from a year earlier — as sales of cars and electronics stall.

Do you remember when people used to say that emerging markets in Asia would rescue the world from its crisis?

Well, Japanese sales to other countries in Asia fell by more than a third from a year earlier, as car sales slid and electronics exports tumbled to China, South Korea, Hong Kong and Malaysia. As the West stops buying TVs made in assembly plants scattered across Asia, their need for high-tech components from Japan dries up too.

Sony, like other big manufacturers, is hurting and the extent of its pain also became clearer on Thursday, when it announced it would lose $2.9 billion this financial year, its biggest loss ever, as it slashes jobs and shutters factories.

Exports to the United States fell even faster than Japan’s shipments to Asia, as car sales stall, so it’s no surprise that business confidence is sliding, along with investment.

The Bank of Japan — which is loaning money left, right and centre on corporate bonds, commercial paper and debt issued by real estate investment trusts to ease a corporate funding squeeze — warns the economy will shrink for two years and faces its second bout of deflation this decade. 

It all adds up to a deeper and longer recession — with Japanese consumers worried about their jobs and incomes in no shape to do anything to help in the rescue.

They largely missed the party enjoyed by shoppers in the United States, Britain and Down Under but they are feeling the hangover now.

So if the big manufacturers are the drivers of the Japanese economy and they are hurting, the surging yen — it hit another 13-year high on Wednesday of 87.10 — is just adding misery to it all.

Whatever money Toyota makes on selling cars and Panasonic makes on selling TVs overseas has fallen in value thanks to the yen’s rise, but the forex markets won’t listen.

The yen will keep going up as long as investors believe the situation is even worse elsewhere in the world, and so far there is no sign of the Japanese government taking any action to try to force its currency down. Although that may change.

The export figures are the last for 2008 but don’t expect 2009 to be any better.