Japanese manufacturers are slumping, and the sentiment could spread further into markets and exchange traded funds (ETFs) if there is no resolution.

The lowest sentiment in 34 years plagues Japan’s manufacturing sector, as the global slowdown has cause demand to disappear, reports Jason Clenfield for Bloomberg. A sentiment indicator that measures the confidence level in builders of cars and electronics is going to dive from -3 to -23, economists predict. Bank of Japan’s Tankan index will reveal the numbers on Dec. 15, however, the overall meaning lies in the idea that thee are more pessimists among few optimists.

The strengthening yen has impacted Japan’s exports, because it makes their stuff more pricey. This could be contributing to their pain, as domestic spending will be slower than usual. Manufacturers are planning the biggest job cuts in 35 years. Japan is simply too entangled in the global markets to not be affected by the downturn.

• iShares MSCI Japan Index (EWJ): down 33.8% year-to-date

• CurrencyShares Japanese Yen Trust (FXY): up 20.7% year-to-date

Read the disclosure, as Tom Lydon is a board member of Rydex Funds.

Tags: Asia, Currency ETFs, EWJ, FXY, Japan, Japanese Yen, Sector ETFs