Recent economic indicators of the performance of the Japanese economy have been weak and prognosis negative. In December Japanese industrial output contracted by 10%. In January this trend intensified. Moreover Toyota has announced 7,000 job losses and Honda a four month closure of their UK plant. Other labour market indicators and consumption related data suggest that the negative shock in the manufacturing sector is spreading gradually to the household sector. Paul Krugman has suggested that the Japanese economy is in ‘free fall’ as is world trade. This view can be linked to those who accuse Japan of relying on exports for growth and contributing to international imbalances that lie at the heart of the current financial crisis.
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