Six lessons Japan can teach the West

If you are living in the U.S. or Western Europe and feeling pretty bad about the miserable state of the recovery, political paralysis, and growing unease about your country’s future, remember things could be worse. You could be in Japan.

Japan has been experiencing those same woes for the past 20 years. And there is no end in sight. Prime Minister Naoto Kan is likely to step down by the end of the month. An announcement could come as early as Friday. His replacement will be the third PM since the Democratic Party of Japan won its historic electoral victory two years ago. Kan leaves behind an economy that has contracted for three consecutive quarters. Yes, part of the reason is the devastating earthquake and tsunami that slammed into Japan in March. But a bigger reason is the continued failure of Japan’s political leaders to tackle the economy’s deepest problems. Kan had a few good ideas – reforming the distorted agricultural sector, for example, or connecting even more to a thriving Asia – but in the end he achieved little. Japanese politics just doesn’t seem to allow for any new ideas ever becoming actual policy.

As the U.S. and Europe find themselves in a protracted downturn of their own, while their political leadership bickers, dawdles and vacations, more and more voices have started asking if the West is entering an endless, Japanese-style economic funk.

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Japan’s Earthquake Hits American Companies’ Bottom Line

When the earthquake and tsunami struck Japan in March, economists and corporate leaders knew it was only a matter of time for the financial effects to reach American companies.

With quarterly earnings season in full swing, companies are reporting in hard numbers what analysts and business leaders could only predict after the March 11 disaster: consumer sales were lost; breaks with suppliers have led to output cuts; and earnings weakened.

The corporate reporting, based on statements from more than a dozen American companies over the last few weeks, demonstrates how intertwined global markets are, when a disaster thousands of miles away in a coastal area of northern Japan rippled through to an auto retailer in Fort Lauderdale, Fla. It also shows that a broad spectrum of companies, like jewelers, handbag makers, clothing retailers and technology companies, were affected.

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Japan disaster could spell disaster for global economy

Japan’s earthquake and nuclear crisis have put pressure on the already fragile global economy, squeezed supplies of goods from computer chips to auto parts and raised fears of higher interest rates.

The disaster frightened financial markets in Tokyo and on Wall Street on Tuesday. Japan’s Nikkei average lost 10 percent, and the Dow Jones industrials fell so quickly after the opening bell that the stock exchange invoked a special rule to reduce volatility.

Yet the damage to the U.S. and world economies is expected to be relatively moderate and short-lived. Oil prices are falling, helping drivers around the world. And the reconstruction expected along Japan’s northeastern coast could even provide a jolt of economic growth.

A weaker Japanese economy could help ease global commodity prices because Japan is a major importer of fuel, agricultural products and other raw materials, notes Mark Zandi, chief economist at Moody’s Analytics. Oil prices fell more than $4 to $97.18 a barrel Tuesday because of expectations that quake damage will slow Japan’s economy and reduce its demand for energy.

Even "assuming a drastic scenario," Bank of America economist Ethan Harris estimates, the disaster would shave just 0.1 percentage point off global economic growth — to 4.2 percent this year.

"Japan has not been an engine of global or Asian growth for some time," says Nariman Behravesh, chief economist at IHS Global Insight. "This means that the impact of much lower Japanese growth on the world economy will be probably limited and small."

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