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 Japan Brief |
| 【Japan Brief】New Additional Bailout Measures |
Japan Brief / FPCJ, No. 0907
February 10, 2009
New Additional Bailout Measures
Japan has taken two additional steps, described as unusual, to prevent a further deterioration of the domestic economy: The Bank of Japan buys up stocks held in portfolios of assets by banks; and the government will infuse public funds into financially distressed industrial firms.
The measures have been warranted as depressed stock prices continue to erode banks’ capitalization, a hefty chunk of which is in shares of corporations with close relationships, making them increasingly cautious to lend. Banks’ tendency to hold back lending, in turn, is putting manufacturing companies, which have been hit hard by declining exports, the stronger yen and their ramifications, in additional financial difficulty, threatening their solvency.
The Bank of Japan’s buying of shares from banks is as yet largely preventive in nature, but the central bank moved at the prodding of the government in view of their increasing reluctance to lend, and on February 3, it decided on a measure to buy shares worth up to 1 trillion yen by the end of April 2010, while the government’s policy with the same objective is yet to come into practice, pending the Diet’s approval of a relevant bill. Under the bill, the Banks’ Shareholdings Purchase Corp. will be allowed to buy up to 20 trillion yen in shares held by banks. The central bank’s step is another emergency measure following its decision to buy commercial papers and bonds issued by corporations facing increasing difficulty in fund procurement.
At a cabinet meeting on the same day, February 3, the government decided on an amendment to the Industrial Revitalization Law, so that public money can be utilized to buy a stake in industrial corporations in a temporary financial crisis. The scheme calls for the governmental Japan Finance Corporation to provide money to the Development Bank of Japan, which will invest in eligible companies. Elpida Memory, Inc., a leading manufacturer of dynamic random access memory (DRAM) integrated circuits, appears likely to become the first major company to take advantage of the system.
The government, moreover, followed this up with a policy to provide guarantees to commercial banks’ stakes in industrial companies. Under the scheme, the government will compensate for 50 to 80 percent of investment made by commercial banks in certain industrial corporations, should it become unrecoverable due to bankruptcy or for other reasons. The government will also guarantee commercial banks’ lending to companies. These systems are expected to be ready in a few months, pending the Diet’s passing of the necessary legislation.
Behind these moves on the part of the central bank and the government is the alarming deterioration of leading Japanese companies’ profit positions. According to a survey by The Nikkei, the leading business daily, 588 listed manufacturing companies as a whole are expected to register a net loss on a consolidated basis in the fiscal year ending March, the first such loss on record.
Electric appliance makers are suffering the heaviest losses, followed by automakers. Of the nine largest electric appliance companies, seven will report a loss—700 billion yen for Hitachi, 380 billion yen for Panasonic, 290 billion for NEC, 280 billion for Toshiba,150 billion yen for Sony. The nine companies as a whole are shedding 67,000 jobs at home and abroad. As for other companies, expected losses in the fiscal year to March will be 350 billion yen at Toyota Motor; 100 billion yen at Sharp; 117.9 billion at Elpida Memory; 16 billion at Toray; 34 billion at Japan Airlines. Companies in all 32 industrial sectors, manufacturing and non-manufacturing, covered by the Nikkei survey will end up with either loss or falling profits.
In the non-manufacturing sector, banks are in a remarkably bad situation. Combined net profits of the six largest banking groups during April through December 2008 plunged 89% from the corresponding period of a year earlier, with Mitsubishi UFJ Financial Group and Mizuho Financial Group slipping into a loss. Mitsubishi UFJ, the largest, reported a net loss of 42 billion yen (compared with a profit of 314.6 billion yen a year earlier). Diminished value of stocks on their portfolio of assets and losses arising from bankrupt borrower companies are taking a heavy toll on banks. While the three megabanks, including Mitsubishi UFJ and Mizuho, are moving to recapitalize themselves through new share issues, banks are increasingly defensive in lending, adding to the severity of the economic downturn.
Concern Raised about Easygoing Bailouts
The infusion of public funds to keep non-financial firms afloat is raising concern, however, as it could serve to help inefficient companies, which are not really worth such rescue, survive. Setting the criteria for eligibility for public bailout, therefore, is going to be a delicate task demanding a scrupulous process.
‣ The Sankei Shimbun in its February 4 editorial questioned the government’s move: “While the Ministry of Economy, Trade and Industry cites the possibility of recovering profitability in three years and possession of ‘substantial influence over the national economy’ as eligibility criteria, details are yet to be spelled out in ordinances, leaving it somewhat opaque. An easy bailout with public funds could deprive the entire Japanese economy of vitality by allowing inefficient firms to survive.”
‣ An analysis article in The Nikkei of February 7 raised the concern that public bailout tends to be “protectionist” as it may allow companies under chronic poor management to get by. “How should a company in real need of public investment or loans be chosen to help weather the temporary fund shortage it faces despite a technological edge?”
‣ The Asahi Shimbun argued in its February 1 editorial: “While the main purpose of the public bailout is to temporarily protect firms from the shock of the global recession, a strategic viewpoint should be added to engineer mid- and long-term transformation of the structure of the economy.” The newspaper cited ecological and energy-saving projects as being suitable for such a direction.
(Copyright 2009 Foreign Press Center / Japan) |
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