Japan's Dismal Economic Outlook Causing Jitters Across Asia

By Phil Mercer

Sydney
30 January 2009

A raft of dismal economic data is sending Japan, the world's second
largest economy, further into recession. The gloom has regional
partners increasingly worried. There is concern in Australia, where
Japan is a key trading partner.  

Japan's bleak economic
outlook has sent shares on the Nikkei index falling by more than 3
percent, caused by a Thursday decline on Wall Street, weak economic
data and pessimistic forecasts of corporate earnings.

Early
official estimates have said that industrial production in Japan dipped
by a record 9.6 percent in December, and January's performance is
likely to be just as bad.

Japanese unemployment suffered its biggest jump in 40 years while household spending was down for a tenth month in a row.

The gloomy news in Japan seems relentless.Car maker trouble

The
country's second-biggest car maker, Honda, has been forced to slash its
annual profit forecast by more than half because of rising costs, a
stronger yen and falling sales. Reports in Tokyo have said that motor
giant Toyota is also in financial trouble and expects to record a loss
in the current fiscal year.

The rapid worsening of the
Japanese economy and in particular its manufacturing sector is bad for
Australia's once mighty minerals and energy producers, which are facing
falling prices and demand.Japanese economy now affecting Australia

Japan bought $22 billion worth of Australian goods last year, and is the country's main export customer.

The
global slowdown has begun to bite on the Australian economy, and the
government is considering a second multi-billion package to stimulate
domestic demand.

Heather Ridout from the Australian Industry
Group is calling on accelerated tax cuts for low income earners,
despite reservations at the International Monetary Fund.

"We're
calling for tax cuts to be brought forward, which are already
scheduled, for the low payed," Ridout said. "The low payed are those
that spend it. The issue with the IMF's view is that if you give tax
cuts to the whole income cohort, that is, to high payed as well as low
payed, often the higher payed people save it."

Asian stock
markets remain nervous amid so much gloom. South Korea's Kospi index
lost ground along with markets in Singapore and Malaysia.

Australian shares were up slightly.

Hong
Kong's Hang Seng was boosted by speculation that China will cut
interest rates over the weekend and posted a modest rise of just under
1 percent.

Markets in mainland China are closed all week for the Lunar New Year.