Japan GDP Has Largest Contraction Since Oil Shock

Japan's real GDP contracted 3.3% qoq (-12.7% saar) in 4Q08 after dropping by a downwardly revised 0.6% wow (-2.3% saar) in the previous quarter. Such decline is the largest since oil shock in 1974.The sharp fall was mainly brought by the collapse in exports which plunged 13.9% qoq in real term after 0.6% qoq growth in 3Q08. Sluggish demand on auto and heavy machinery in overseas markets, as well as surge in Japanese yen, were the major reasons of the decline in demand.

Having been technically in recession since 2Q08, Japan's, as a country relies heavily on exports, economic condition has shown significant deterioration in 4Q08. Going forward, we still feel gloomy about the world's second largest economy.

The Bank of Japan reduced its interest rate to 0.3% and we expect the central bank will adopt more unconventional easing measure, such as purchase of commercial papers, so as to revive the economy.

Source: Cabinet Office,Action Forex