Japan became an important diamond market about 40 years ago. But 20 years of economic stagnation and the global financial crisis last year have combined to lead to a fall in diamond imports, AWDC reports.
For Japan, last year saw a milestone being passed. Unfortunately, however, it was not the type that the land of the rising sun wanted to see, as it gave up on its position as the second largest global market for polished diamonds. Just as Germany last year had to cede to China its position as the world's third-largest exporter, so Japan was pushed into third place in the global rankings of polished diamond importers by its huge neighbor to the southwest.
Given that many economists believe it is only a matter of years before Japan is overtaken by China as the world's second-largest exporter as well, it does not seem out of place that the Chinese giant should be pushing Japan down the table with such apparent ease. Japan’s imports of polished diamond last year dropped 19.7 percent to $619.2 million, with an average price per carat of $285, according to official figures. Although Japanese imports ended the year on a more optimistic note, with goods brought into the country down in December just 0.9 percent on a year earlier, the figures in financial terms are far from overwhelming at just $43.9 million.
Meanwhile, China’s trade in polished diamond imports and exports last year jumped 16.4 percent to $1.52 billion, the Diamond Administration of China (DAC) reported. Imports received through the Shanghai Diamond Exchange (SDE) soared 30.7 percent to a new high of $699 million, meaning the country had surpassed Japan in becoming the second-largest diamond consumer market, the DAC said. Among those figures, Belgium shipped $138.5 million worth of goods to Japan during 2009, a fall of 35.8 percent compared to 2008.
The decrease in imported polished diamonds is reflected in falling Japanese retail sales of diamond jewellery in recent years. The sales performance of major international jewellery retailers in Japan, such as Tiffany & Co., are consistently poor. Thus, while in the company's latest results for the November-December holiday season, Tiffany & Co. reported a 17 percent rise in global sales to $799.1 million, with U.S. sales rising 13 percent, European sales up 30 percent and overall sales in the Asia-Pacific region increasing 11 percent, in Japan there was a 12 percent decline.
Similarly, luxury goods group Richemont, reporting on its third quarter, said the Asia-Pacific region was the strongest performer for the company, posting a 25 percent rise in sales at actual exchange rates and a 34 percent rise at constant rates. Japan, however, reported a 12 percent fall in the period at actual rates, and 11 percent at constant rates.
Japan managed to emerge from a severe year-long recession in 2009, but recovery remains fragile with deflation, high public debt and weak domestic demand all concerns for policymakers. And the outlook for the Japanese economy remains fairly dim, amid fears that a return to recession is a real possibility in the months ahead, with unemployment at record highs and no sign of any improvement in consumer spending. As a result, the Japanese parliament has been debating whether to introduce a third round of fiscal stimulus measures. Japan also suffers from poor demographics, with a large and ever-increasing elderly population and falling numbers of young people entering the workforce.
The Japanese economy has been in a state of decline for two decades, with the main problem being deflation. And Japan's consumer prices fell at a record pace in December, according to official figures. Prices fell by 1.2 percent, the biggest drop since the current consumer price index began in 1970. Deflation encourages people to keep hold of their money because it will grow in value, rather than be eroded by inflation. It also makes sense for consumers to delay buying goods because they expect future falls in prices. All of that causes a reduction in demand creating a dismal outlook for retail sales.
Even Finance Minister Naoto Kan said he was only hopeful that Japan could escape deflation in two to three years, with the help of the Bank of Japan. It has responded to deflation for two decades by slashing interest rates in order to encourage people to spend more, but the central bank has held rates at almost rock bottom for many years with little effect, and now has little room to cut further to encourage spending. Meanwhile, Japan's national debt is now about twice as large as the country's annual national economic output, according to the International Monetary Fund.
In a further blow, the international credit ratings agency Standard and Poor's warned last month that it may cut its rating on Japanese government bonds, saying efforts to curb the soaring public debt were faltering. Meanwhile, the Organisation for Economic Cooperation and Development has warned that Japan's public debt is set to soar to more than 200 per cent of gross domestic product by 2011.
Alex Shishlo, Editor of the Rough&Polished European Bureau in Brussels
