Tokyo: Japan swung to its first current account deficit in 13 years in January as exports collapsed, and a key US policymaker said a coordinated global effort was needed to boost demand and drag the world out of recession.
Unemployment in the United States rose to a 25-year high last month as firms axed workers in the face of a severe recession, but financial markets took some comfort from the fact that monthly job losses of 651,000 were not as high as some had feared.
“Ahead of the jobs report there had been rumours about a possible loss of 1 million jobs, but the result turned out to be basically in line with expectations,” said a trader for a Japanese trust bank.
The dollar dipped against the yen and euro on Monday as investors trimmed safe-haven buying of the US currency.
Asian share markets were mostly weaker, with Japan’s Nikkei hurt by falls in the stocks of car makers, such as Honda Motor Co, due to fears about the fallout for the industry if struggling General Motors were to fail.
Japanese data on Monday revealed a record current account deficit, with the income surplus tumbling about a third from a year earlier, as the global recession crushed export demand and income from overseas investments.
The contraction in Japan’s main export markets is pushing firms such as Toyota Motor Corp and Sony Corp deep into the red, prompting job and production cuts and setting the economy on course for its longest recession in modern times.
“We have seen the declines in exports, and now we see the income balance declining because the global financial crisis is cutting earnings on overseas investments,” said Akira Maekawa, senior economist at UBS.
Underlining how a crisis that grew out of a US housing market slump has spread from the rich world throughout the globe, the World Bank said developing countries could face a financing gap of $270-$700 billion this year as trade income dwindles.
The World Bank said even at the lower end of that estimate, resources of international institutions would not be sufficient to meet the financing needs as more and more emerging and developing countries are hit.
“Should a more pessimistic outcome occur, unmet financing needs will be enormous,” the World Bank said.
The gloomy report came in a paper prepared for a summit in London next month of the G20, which groups the world’s richest nations and biggest emerging economies. To prepare for that summit, G20 finance heads meet this weekend in England.
Much of the industrialised world, including the United States, Japan, the euro zone and Britain, are in the grip of a deep recession, and emerging economies are feeling the squeeze from plunging demand and frozen credit.