Japan’s trade deficit widened because of the uncertainties in Europe, the drag on China’s economy, and low oil prices. The first two factors reduced exports and the low oil prices affected imports. The deficit widened to 517.4 billion yen, almost double analysts’ forecasts for 270 billion yen.
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The outlook for the near future also does not bode well. The drag on global growth coupled with strength in the yen will keep exports in check. This is particularly bad news as Japan is continuing its recovery from an already contracting economy as well as the earthquake and tsunami in 2011.
The issues in Europe are putting a damper on sentiment that is affecting the rest of the world. As a result, more countries are falling into the camp of needing monetary stimulus to revitalize recoveries in their own economies.
As more and more countries need stimulus funding, where will all the funding come from? Of course, not all stimulus comes in the form of funding. It also comes in the form of making access to funds easier through lower interest rates or other incentives.
But there seems to be a relentless cycle that develops that causes distressed countries to drag on healthy ones so that they, too, face unattractive options.
Stronger currencies negatively affect profits and sales of exports. This feeds the need for external funding so that economies can hang on until things turn around. The world economy is so connected today that what happens in one economy can easily spill over into others.
Reports will come out today, August 22, that will indicate the health of many of those other economies. This points poignantly to the fact that decisions in one country must now be made with not only that country’s welfare in mind, but also the impact
those decisions will have on other economies across the globe.