Uh-oh...

Much of the prosperity in the grain industry is being driven by exports to growing economies around the world, but especially Asia.  While Japan has fallen into the shadow of China, it is still a larger economy and a principal driver of the Asian area.  It looks like they are back to the bad old days of the '90's.

Japan's economy contracted last quarter, bringing the country to the brink of its first recession in six years, as exports fell and consumers spent less.

Gross domestic product shrank an annualized 2.4 percent in the three months ended June 30 after expanding 3.2 percent in the first quarter, the Cabinet Office said today in Tokyo. The Nikkei 225 Stock Average fell the most in a month.

Exports fell the most since the 2001-2002 recession, robbing Japan of the engine that drove its longest postwar expansion, while record fuel and food prices deterred spending at home. Toyota Motor Corp. last week reported its worst earnings decline in five years as U.S. sales slumped, and Japan Airlines Corp. said it will cut wages to counter rising costs.

``The economy will keep flying at a low level this year as demand weakens, even from Europe and Asia,'' said Hiromichi Shirakawa, chief economist at Credit Suisse Group in Tokyo. ``Japan's economy is deteriorating.'' [More]

Of course, while Japan trod water, the US economy roared, so we can definitely have good times without them on board. But the Japan-China connection of trade and growth could be a drag factor for the Chinese.

But longer run, the continuing fitful performance of the Japanese economy could affect us by slowing their purchase of our debt - which our government is producing with gusto. It could turn out that our Fed will not have the ability to dictate intetest rates as easily as we have come to expect. Our debt customers may set the price.