Japan in crisis as recession deepens

Japan was today battered by a tidal wave of dismal economic news as it faced up to its worst post-war recession.

Honda reported an 89% slump in profits while rival carmaker Toyota warned losses this year will be far greater than originally expected.

Grim news from Mizuho, Nintendo, Toshiba, Hitachi and Daiwa, and figures showing a record fall in factory output and soaring unemployment, added to the gloom.

"Japan's economy is falling off a cliff," said Junko Nishioka, an economist at RBS Securities Japan in Tokyo. "There's really nothing out there to drive growth."

The Nikkei 225 Average of leading shares in Japan closed down 226.44 points at 8149.01 , leaving it down 9.8% on the month — its second-worst start to a year.

The crisis in Japan is being felt in the UK. The International Monetary Fund this week said Japan's gross domestic product will shrink 2.6% this year, with only the UK having a bleaker outlook — a decline of 2.8% — among the major industrialised nations.

The Honda factory in Swindon closed for four months today, one of the longest shutdowns in Britain's recent industrial history. More than 4000 workers will receive their full basic pay for the first two months and 60% after that.

Honda, which has been hit by a downturn in the car market at home as well as in the UK and beyond, said profits in the last three months of 2008 were just 20.24 billion yen (£158.7 million), compared with 200.01 billion yen a year earlier. It cut its annual profits forecast in half.

Toyota, until last year the most profitable carmaker in the world, last month projected its first-ever operating loss, of 150 billion yen. Company sources today said the loss could reach 400 billion yen.

The pain went beyond the car makers. Japanese bank Mizuho, which is cutting almost 100 of its 770 staff in London, posted a loss of 50.5 billion yen for the first nine months of the year.