In my years of following G7 economies, I have never seen weaker data than we have had in Japan in recent months.

Today’s data:

• 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.