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Japan goes down under - Views on News from Equitymaster
 
 
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  • Nov 17, 2008

    Japan goes down under

    The Sun seems to have set on this land, at least for the time being. After the US and the UK, it is now Japan's turn to go into a recession, with the country's GDP shrinking during the July to September 2008 quarter. As reported on Bloomberg and other international media, Japan's economy declined by 0.4% during the quarter, the first time since 2001.

    Economists had expected the economy to grow by 0.1% and as such the reality comes as a disappointment. But given the decline in business confidence, and corporate and consumption spending, the results are not far to fathom.

    Economists now project that Japan may be entering into its deepest recession in a decade as the global financial crisis cools demand for its products within the country and overseas. Tough times indeed for the world, as three of its largest economies are now in recession with no clear signs of recovery.

    Interestingly, however, the Japanese benchmark stock index - Nikkei - is currently trading in the positive (up 1%). Other key Asian markets are trading weak, with major losses seen in Hong Kong (down 1.1%) and Singapore (down 0.8%). Hong Kong is also reported to have slid into recession with the economy shrinking by 0.5% during the July to September 2008 quarter.

    As far as India is concerned, voices asking for further interest rate cuts are getting louder. This is as part of the proposed plan to pump the economy by using measures like cuts in interest rate and taxes, and investment in infrastructure. The country's leading corporate leaders are also asking the RBI to cut interest rates further to enable demand to pick up pace again.

    As a matter of fact, the RBI has already cut its benchmark lending rate (repo rate) to 7.5% from 9% over the last month. It has also reduced the cash reserve ratio (CRR) by 3.5% (to 5.5%), thereby freeing up Rs 1,400 bn for banks to lend. Now the fact that inflation (as measured by the Wholesale Price Index or WPI) has declined to its lowest level of 8.9% in over five months, the Reserve Bank Of India (RBI) will have a greater leeway in cutting interest rates further.

    On the other hand, the fact that credit continues to grow by leaps and bounds (28.5% YoY growth reported in the RBI's latest release) will force the RBI to take a harder look at its next decision, whatever it may be.

     

     

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