Special Author: Iwao Nakatani

The shock of the worldwide financial crisis over the past year has affected Japan more or less to the same degree that it has the rest of the world.

Drop in the price of stocks and other financial assets has been enormous, in spite of the Japanese financial sector being relatively unexposed to the sub-prime business, as against the financial sectors in America or Europe. The Nikkei Average, for example, fell from 15,156 yen in January 2008 to 6994 yen in October 2008, a drop of some 54 per cent. Many commercial banks are trying to squeeze their lending in response to the deterioration of their balance sheets, producing a serious credit crunch in the domestic economy.

At the same time, the yen has appreciated from 110 yen against the US dollar in January to 87 yen in December, an appreciation of more than 20 per cent. The yen has also appreciated significantly against other major currencies: it was only 160 yen per Euro in January but it rose to 114 yen per Euro in October. These changes have affected Japan’s export industries seriously and there will be more of the same in the coming year. The Japanese economy is still export-oriented in character and the sharp decline experienced by export industries like automobiles and electronics will do major damage to the economy in the coming year.

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