Japan tries to avoid another lost decade

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Japanese exporters hurting

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NEW YORK (CNNMoney.com) -- The 1990s are commonly known as Japan's "lost decade." Now, this decade isn't looking too good either.

Japan's Finance Ministry reported Monday that global exports slumped nearly 27% in November and that exports to the United States plunged almost 34%.

The combination of a strong yen, which makes Japanese goods more expensive, and cash-crunched consumers worldwide is crippling Japanese exporters.

Toyota Motor (TM) warned Monday that it would post an operating loss for this fiscal year, which ends in March. Honda Motor (HMC) cut its profit outlook last week and said it would scale back auto production.

Electronics company Sanyo, facing tough market conditions around the globe, agreed Friday to sell itself to rival Panasonic (PC). And earlier this month, Sony (SNE) announced it was cutting 8,000 jobs, or about 4% of its worldwide workforce. Shares of Sony's U.S.-listed stock have plummeted nearly 63% this year.

The Bank of Japan, like the U.S. Federal Reserve, has been slashing interest rates in an attempt to end the economic bleeding. Japan's central bank lowered rates on Friday to 0.1%

So far, the rate cuts have not been enough to help the Japanese economy. And the yen has remained stubbornly strong.

The bad news may get worse. Because Japan is so heavily dependent on exports, that the entire world is mired in a slowdown will make it that much tougher for Japan to recover.

"We are in the midst of a global recession where developing countries are in contraction and emerging countries are in a synchronized slowdown," said Chris Probyn, chief economist with State Street Global Advisors in Boston. "There is no place to hide. So there is a danger of a pretty long period of malaise in Japan."

Exports to China, Japan's second-largest market after the United States, fell 24.5% in November. Exports to Western Europe dropped nearly 31%.

Making matters worse for Japan is that some believe consumers, especially in the United States, may have learned some painful lessons from this recession and will cut back on spending in the next few years.

"After borrowing like there was no tomorrow, U.S. consumers finally seem intent on curbing their indebtedness," wrote Yanick Desnoyers, assistant chief economist National Bank Financial in Montreal, in a report Monday.

"The next economic expansion could well be characterized as a period of "great moderation," with households seeking to rebuild their savings and to diminish their debt load," he continued.

Keith Hembre, chief economist with First American Funds in Minneapolis, said an eventual U.S. economic recovery is likely to be led more by government fiscal stimulus, spending on infrastructure and other programs, and not by consumer spending.

Of course, if U.S. consumers learn to cut the debt cord and live more within their means, that is good news for the long-term health of our economy. But it's not promising for export-dependent nations like Japan.

Hembre thinks the U.S. economy can slowly start to recover even if Japan remains in a slump. But it probably won't work the other way around.

"The U.S. is not that huge of an exporter to Japan. We are a lot more important to them than they are to us," said Hembre.