As the desperate search for cash intensifies, many companies in the region will be driven to export at almost any cost, if only to stay a step ahead of creditors. After all the huge currency devaluations, this means that profit margins will be squeezed on goods that Japan sells into the region. Early warning signals are already flashing at companies such as Mitsubishi Heavy Industries and Hino Motors, which have announced sharply lower earnings for the past six months. Throughout Japan, capital investment is being scaled back. Consumers are tightening their purse strings.
Corporate bankruptcies are on the rise.
It would be bad enough if the government did nothing. The one pillar of strength in Japan's anemic stock market has been the export sector. But with profits set to shrink, shares of exporting companies have begun to decline. The outlook is for a further sharp deterioration in the U.S. trade balance. The financial meltdown in East Asia is also creating problems for Japan's troubled banks.