TAIPEI, TAIWAN — With Secretary of State Hillary Rodham Clinton beginning a tour of Asia this week in Tokyo, Japan's economy is suffering from its worst downturn in 35 years, and its prime minister is hanging by his nails to keep his job.
Japan's economy, the second-largest in the world after that of the United States, shrank at an annual rate of 12.7% in the final three months of last year, the government said Monday. It was the biggest contraction since a surge in worldwide oil prices precipitated an economic crisis in 1974.
Japan's prime minister, Taro Aso, had said just last week that "our wounds are shallow" compared with the economic pain in other countries.
But the fourth-quarter report showed Japan's economic output plunging much more steeply than that of the U.S. or the European Union -- and analysts say the trouble is likely to intensify.
"I think the overall situation will continue into the third and fourth quarter this year," said Masaru Hamasaki, a strategist at Toyota Asset Management in Tokyo. "And even if there is a recovery, it will probably be weak."
The main reason: Like China, South Korea and Taiwan, Japan has relied heavily on exports, especially to the U.S., to drive economic growth. When the credit crunch sapped the American economy and consumers pulled back last year, Asia's exports collapsed.
Exacerbating matters for Japan has been an increase in the value of the yen, which has tended to make Japanese goods more expensive in foreign markets.
In December, Japan's total exports fell at the sharpest pace on record, and its exports to the U.S., Europe and the rest of Asia each plummeted more than 35% from a year earlier.
The data confirmed a spate of grim news in recent weeks from Japan's biggest companies, including Toyota Motor Corp.'s first operating loss in 70 years and layoffs of tens of thousands of workers by NEC Corp., Nissan Motor Co., Sony Corp., Toshiba Corp. and others.
Even before those job cuts, Japan's unemployment rate jumped to 4.4% in December from 3.9% in November, mainly because of staff reductions at small and medium-size businesses as well as the elimination of many temporary jobs.
But slumping exports aren't the only factor to blame. With inflation's return to Japan last year after a long absence, real wages have declined. As a result, even though Japanese consumers have reduced their famously high rate of savings, they trimmed their spending for three straight quarters. That's something that didn't happen even during the "lost decade" of the 1990s, when the economy collapsed after a property-and-stock bubble burst.
