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Why Japan is Swine Flu's Greatest Victim
Last Updated 4/28/2009 1:01:45 AM EST (GMT +5)
Japan’s retail sales fell for a seventh consecutive month in March as weakening labor market prompted households to cut spending in a clear sign that Japan’s economy is seeing no evidence of a rebound in consumer demand. Sales declined by 3.9% earlier which was actually a bit better than the market consensus of a 4.7% drop, but despite the slightly better than forecast numbers, today’s retails sales data confirms the fact the world’s second largest economy remains mired in the worst economic slump in the post war era. Yesterday, the Japanese government forecast that the economy will shrink by 3.3% in 2009.
The sharp appreciation in the value of the yen has exacerbated the economic contraction in the land of the rising sun and the current market focus on the swine flu epidemic is only making the made the situation worse. As fear continues to dominate trade in the currency market, yen has risen to a six week high against euro and a four week high against the greenback.
The latest tide of risk aversion triggered by the swine flu epidemic hurts the Japan in two ways. First, the higher value of the yen squeezes profit margins for the export driven Japanese economy. Secondly, if the swine flu crisis persists for an extended period of time it may further dampen global trade reducing the country’s income.
Today, The World Health Organization, acknowledged the growing threat of swine flu, and raised its global pandemic alert from 3 to 4, saying the disease is no longer containable. Meanwhile USD/JPY continues to trade lower in afternoon Asian dealing breaking the 9600 figure to the downside and could now target the 9500 handle as fears continue to resonate through the currency market. Thus, while Japan has so far avoided any cases of infection from the swine flu epidemic, the country’s economy may wind up being the pandemic’s biggest victim as yen strength strangles any prospect for growth.
About The Author
Schlossberg has more than 20 years experience financial trading on Wall Street. His daily currency research appears in numerous newspapers worldwide and Schlossberg serves as a regular contributor to CNBC's Squawk Box and Bloomberg radio and television. Read more >>