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Japan economy shaky as island spat hits business

Associated Press Modified: October 9, 2012 at 10:00 pm •  Published: October 9, 2012
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TOKYO (AP) — The craggy island specks in the East China Sea aren't even an economic backwater. They have no factories, no highways, no shops, no people — only goats. But the high-pitched row between Beijing and Tokyo over their ownership is exacting a growing toll on Japan, threatening to send its recovery from last year's disasters into reverse.

Sales of Japanese cars in China are in a free-fall. At the China Open last weekend, a representative of Sony Corp., which is a sponsor of the tennis tournament, was loudly booed at the title presentation for the women's final. Chinese tourists are cancelling trips to Japan in droves. And some analysts say Japan's economy will shrink in the last three months of the year.

The business and economic shockwaves come after Japan last month nationalized the tiny islands, called Senkaku in Japan and Diaoyu in China, which were already under Tokyo's control but are also claimed by Beijing. The move set off violent protests in China, and a widespread call to boycott Japanese goods. Toyota Motor Corp. and Honda Motor Co. dealerships were burned down in one city.

Seeing footage of Toyota cars getting smashed by angry rioters, Toyota President Akio Toyoda had looked almost tearful, confiding in reporters: "I couldn't bear to watch. It hurt as though I was getting beaten."

A report by J.P. Morgan, released Tuesday, projected Japanese auto exports to China will crash 70 percent during the October-December period. The export of auto parts will slip by 40 percent — about the same drop estimated for exports of other consumer products, such as electronics, it said.

The aftermath of the latest phase of the sizzling territorial spat with China will cause Japan's economy, the world's third biggest, to shrink 0.8 percent in the fourth quarter, according to J.P. Morgan. It had previously forecast no growth in the quarter.

J.P. Morgan chief economist Masaaki Kanno fears the fallout could get worse in the months ahead, as the September sales numbers for Japanese automakers only account for damage that started the middle of the month.

Toyota said Tuesday that sales of new vehicles in China dropped 49 percent in September from a year earlier to 44,100 vehicles. Honda said September sales plunged 41 percent to 33,931 vehicles. China sales for Nissan Motor Co. slid 35 percent last month to 76,100 vehicles.

Even the most optimistic scenario does not foresee a recovery in Japan's economy until the second quarter of next year, Kanno said.

"What we have ahead of us is going to be terrible," he said. "It's like last year's disaster all over again."

The quake and tsunami in northeastern Japan last year hobbled the economy for months. Auto production was particularly hard hit because parts suppliers had been located in the disaster area. Flooding in Thailand that followed added to the automakers' woes. They had only bounced back toward the end of last year, after months of rebuilding.

Kanno's report said the number of Chinese tourists would decline by 70 percent while Japanese tourists to China would fall by 30 percent.

Ayumi Kunimatu, spokeswoman for Japanese carrier All Nippon Airways, said 43,000 seats had been cancelled for flights from September through the end of November — 28,000 of them from China to Japan, and 15,000 from Japan to China. Up to now, China flights had made up a quarter of ANA's international passengers.

A person who answered at China International Travel Service in Beijing confirmed group tours to Japan had been called off. The Chinese state-run news agency Xinhua reported that more than a hundred thousand Chinese cancelled Japan trips, and the number of tour groups to Japan had plunged by 40 percent.

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