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In my years of following G7 economies, I have never seen weaker data than we have had in Japan in recent months.
- Industrial production -9.6% in December (record monthly fall), following up on -8.5% m/m in November and industry projecting -9.1% in January.
- Moreover, the ratio of inventories to shipments rose 6.5% for the month and is now up 33.5% yr/yr.
- Tokyo Core CPI also went back into negative territory in January (-0.3% yr/yr).
- The weakness in manufacturing thus far reflects the collapse in demand from China and the U.S. (exports down 35% yr/yr).
- As production cuts lead to higher layoffs, the next leg down will be in private consumption.
- Most dealers are now forecasting back to back -10% quarters for real GDP in Q4 and Q1.
- With the current government on the ropes and April legislation that may lead the yen even stronger, the prognosis past Q1 doesn’t appear very good.