Japanese exporters have warned the economy is slowing down in the wake of a sharp drop in global demand and an oversupply of dollars.
Japan’s economy shrank by 0.3 per cent in the March quarter to 3.45tn yen, the worst annual drop since the financial crisis.
The country has been in recession since 2012 and has struggled to recover from the fallout from a nuclear disaster in 2011.
Japan has been relying heavily on dollars to keep its export-driven economy afloat.
Its currency has dropped in value by around 25 per cent against the US dollar, and some economists say the yen is overvalued.
The yen is also weaker than other currencies, which have been falling in value against the dollar.
It is unclear whether the Japanese economy will be able to recover quickly enough to meet the needs of exporters.
In a recent survey of 500 Japanese companies by Kyodo, only 12 said they expected the economy to grow by 3 per cent this year, according to data compiled by Bloomberg.
A number of other companies, including auto makers Toyota and Honda, have warned they may have to cut production and shift some of their investment abroad to cope with a stronger yen.
“We may have some tough times ahead,” said Yoshihiro Takahashi, a Japanese car maker.
Toyota is expected to shed about 4,500 workers by the end of next year and raise prices on its new Prius plug-in hybrid vehicles to keep up with inflation.
As the economy weakens, exporters are also being squeezed by higher tariffs on imported goods and the inability to import foreign products.
There are signs that exports are slowing in other regions, too.
A Japanese-led international trade body has said Japan’s economy could shrink by another 10 per cent to 20 per cent next year, down from around 20 per on average during the current economic boom.
For Japan, the outlook is more bleak because of a rising number of expats who have fled to neighbouring countries.
According to the government’s figures, more than 3.3m people are currently living overseas, up from about 2.6m a year ago.
That’s about 30 per cent of the country’s total population, the government said in a survey released last month.
Last year, Japan exported $4.2 trillion worth of goods to other countries.
That compares with $2.6 trillion in 2016.
About a third of Japan’s exports go to countries that have not adopted a currency union, which would effectively eliminate the yen as a foreign currency.
Japanese Prime Minister Shinzo Abe said he would seek a “grand bargain” with his European allies to ease the fiscal burden on the country.
He has also pledged to reform Japan’s health system to boost productivity and cut its reliance on pharmaceuticals and medical devices.
On Thursday, the Reserve Bank of Japan cut its forecast for Japan’s gross domestic product growth for the current quarter to 1.4 per cent from 2 per cent.
(Reuters) Japan was already the world’s second-largest economy in 2016 and it is forecast to grow more than 5 per cent by 2020, its strongest performance since the crisis, according the government.