UPDATE 3-Record Japan export slide as Asia demand buckles

Wed Jan 21, 2009 11:47pm EST

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By Yuzo Saeki and Hideyuki Sano

TOKYO Jan 22 (Reuters) - Japanese exports plunged a record 35 percent in December from a year earlier as Asian consumers buckled under the global financial crisis and a U.S. recession crushed demand for electronics and autos.

Collapsing exports probably pushed Japan deeper in to recession in the fourth quarter, and with the global economy crumbling and the yen at 13-year highs against the dollar, there was no light at the end of the tunnel, analysts said.

Imports slumped in December, signalling sinking domestic demand, and a survey showed business sentiment tanking, adding to the problems the Bank of Japan must grapple with as its reviews policy on Thursday. [ID:nT154616]

"External demand will likely cut Japan's GDP by more than one percentage point for the final quarter of last year," said Junko Nishioka, chief economist at RBS Securities.

"Exports are likely to continue to fall at least until the first quarter of this year and possibly longer."

Exports to Europe, the United States and the rest of Asia all fell at a record pace in December.

While exports to the United States have falling since the U.S. mortgage defaults mutated in to a global credit crisis 17 months ago, Asian demand held up for most of last year. Now regional shipments are tumbling just as fast.

Exports to Asia sank 36.4 percent, the third straight month of decline. Shipments to China fell 35.5 percent.

TECH SLUMP

Most of the decline was to due to falling demand for electronic parts to China, South Korea, Hong Kong and Malaysia, where technology factories are shutting down in the face of the recession in their biggest market, the United States, a finance ministry official said.

The slump in tech demand helped nearly halve Taiwan's exports in December, pushed down South Korea's by more than 17 percent and prompted Intel Corp (INTC.O) to announce the closure of plants in the Philippines and Malaysia.

While the U.S. recession is still the main drag on Asian trade, there are signs the global financial crisis is rippling across Asian economies, forcing consumers and companies that were once expected to be drivers of growth to shrink from spending.

The volume of automobile shipments to Asia fell 32.9 percent in December from a year earlier, a finance ministry official said, almost twice as fast as previous month.

Shipments to China of chemicals used in the construction industry also fell, the official said.

China, the world's third largest economy after the United States and Japan, hit a wall in the fourth quarter, growing at 6.8 percent. Annual growth of 9 percent in 2008 was the weakest in seven years.

"The sharp fall in exports to Asia shows that worsening economic conditions in the United States and Europe are damaging Asian economies," said Yoshiki Shinke, senior economist at Dai-ichi Life Research Institute.

Exports to United States plunged 36.9 percent as automobile shipments sank. It was the 16th straight month of decline.

For a graphic click on export data click on:

here

YEN RALLY

"The yen's sharp rise is also very damaging and will delay a recovery in Japan's economy," Shinke said.

Rising risk aversion in the face of fears about the stability of U.S. and European banks sector woes pushed the safe haven yen to a 13-year high of 87.1 per dollar on Wednesday. FXNEWS [FRX/]

Japan's top currency bureaucrat, Naoyuki Shinohara, said he was monitoring foreign exchange markets but declined to comment on whether Tokyo would intervene to rein in the currency. Finance Minister Shoichi Nakagawa warned against rapid currency moves. [ID:nSP288020]

Collapsing exports and a surging yen are hitting Japanese companies. The mood among Japanese manufacturers' hit a new low and service sector sentiment sank to the worst in seven years, the Reuters Tankan survey showed. [ID:nTKC003254]

To deal with the downturn, many companies are cutting jobs, raising more concerns over domestic consumption.

Imports tumbled 21.5 percent, more than a 16.5 percent fall economists had forecast. They had predicted a 30.1 percent decline in exports.

Sliding exports left Japan with a trade gap for three months in a row, the longest time it has run deficit since 1980. (Writing by Dayan Candappa; Editing by Rodney Joyce)

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