Japan

18/11/2008

Global markets crashed in October and the TOPIX suffered heavy losses. With the financial crisis worsening, central banks and governments around the world scrambled to address the issues facing the global system. They slashed interest rates, rescued more financial institutions, injected capital into the banking system and made other bold moves aimed at resolving the crisis, but the actions failed to assuage investors’ worries. Concerns over a global economic recession continued to strengthen in response to developments including falling corporate profits and a deterioration in US statistics on industrial production, retail sales and consumer confidence. The downward spiral of share prices was reinforced by forced redemptions and a lack of liquidity. Commodity prices tumbled over the month – oil fell from nearly $100 per barrel to around $60 – and inflation figures eased.

Sentiment in Japan was impacted by concerns about the global economy, but also by a strengthening yen (seen as a safe haven currency) and by further domestic data which seemed to confirm that the economy was on the way to a fully-fledged downturn. For example, machinery orders plummeted, export growth figures fell far short of expectations and department store sales were down year-on-year for a seventh consecutive month. Many firms lowered earnings guidance; exporters Sony and Canon were among those making deep cuts. Late in the month, the government unveiled its second stimulus package, larger than the first, and also cut interest rates by 20 basis points to 0.3%.

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