Japan Is Shaky Because U.S. Is Shaky

So much for the decoupling theory, which goes something like this: foreign markets don’t depend as much on the U.S. as they used to, so they could be just fine even if the U.S. economy slows down.

Today here in Tokyo, Q4 growth was revised downward to 3.5% and economists expect the annualized rate to drop to 2.3%.

Guess what the biggest concern is over here? That a slowdown in the U.S. will take a bite out of Japanese profits because Japan is an export economy. I’m also hearing talk that investments in the private sector are ramping down from the high levels that have helped prop up the Nikkei for the past six years.

At the same time, the yen has strengthened almost 20% against the dollar since last summer, further reducing profits brought back to Japan from the U.S.

Thanks to rising oil prices and export profits falling from (A) the slowing U.S. economy and (B) the rising yen, Japanese companies are holding salary increases down and might cut bonuses this summer. That’s putting a lid on consumer spending.

All told, Japan is talking about last quarter being its peak in the recovery and whispering that a mild recession might lie ahead. That should sound familiar. Talk like that began in America about six months ago.

It’s almost like the two economies are linked.

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