Japan’s economy, the second largest in the world after that of the Unites States is seeing the worst contraction in 35 years.

The last three months of 2008 saw the economy shrink at an annual rate of 12.7%. The downturn has been fueled by an increase in the value of the yen, making Japanese goods more expensive in foreign markets.

Another problem that Japan has is it’s heavy reliance on global exports. With a global slowdown in demand for cars and electronic goods such as TVs and machine tools, the economy in Japan is taking a serious hit from the global economic crisis.

Unlike other countries though, Japan has not suffered a housing crisis or a credit crunch.

Image by oimax under Creative Commons.

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