The behaviour of (now former) Japanese Finance Minister Shoichi Nakagawa's at the G7 press conference in Rome last weekend left many amused. His speech was unclear and he repeatedly closed his eyes as if he was dozing off. At one point, he mistook a question aimed at the governor of the Bank of Japan as one intended for him.
His explanation: He was not drunk. Just suffering from a cold and reacted badly to the medication.
Unfortunately, there’s nothing amusing about Japan’s economic performance and neither can it be explained away that easily.
Japan, the world's second-biggest economy, is seeing a steep slowdown, the country’s worst downturn in 35 years. The surging yen has made Japanese goods more expensive in foreign markets. This has resulted in exports collapsing. The country’s GDP slumped at an annualized rate of 12.7% between October and December.
While this news spooked markets across the globe, U.S. president Obama signed an economic stimulus plan in Denver worth over $787 billion. In a bid to boost the ailing U.S. economy, he described it as the “the most sweeping recovery package in our history”.
It did nothing to help the markets. Wall Street took a beating on Tuesday. So did European and Asian markets. Crude oil tumbled below $35 per barrel.
What’s dragging stock markets down globally is the awareness and probably, even the acceptance, that this recession is going to be long and deep. Much more than what was thought of earlier, at least.
Neither do many fund managers see any recovery taking place in 2009. Shankar Sharma of First Global says it well, “We are not done with this bear market. The lows have not been securely put in place. We will definitely hit some lows in 2009, but highs won't be there for a long, long time.”
I guess what we can be sure of is volatile times. The lesson: If you are investing in the equity market, ensure that you will not need that money for quite a while.
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