Overview
After several years of serious restructuring efforts to boost
profitability and competitiveness, Japanese companies have finally
seen some bright signs in business. Although Japanese companies
remain debt-shy, limiting investments to amounts within their
cash flow, they now have more money to be more adventuresome
in technology and equipment investment thanks to fatter profits.
Capital spending plans for all industries in fiscal year 2003
were forecasted to increase 4.9% year-on-year according to a
survey by the Development Bank of Japan (*1), The Tankan (quarterly
business survey of the Bank of Japan) Survey of corporate sentiment
(*2) anticipated a 2.2% rise for the same year. In Japan, such
spending accounts for about 15% of gross domestic product.
Reflecting the nascent recovery in the Japanese economy, the
Tankan Survey for July-September period in 2003 showed the diffusion
index of business sentiment among large manu-facturers turning
positive for the first time in 33 months. But the survey also
highlighted three worrisome factors that may cause the economic
recovery to falter: the strengthening of the yen, a rise in
interest rates, and poor business sentiment among non-manufacturers
and smaller businesses.
Compared with large manufacturer supported by strong exports,
business sentiment among non-manufacturers relatively dependent
on domestic demand is weak, with the index for the latter group
remaining negative, as their sales growth was hampered by deflation.
Although non-manu-facturers are slashing personnel expenses
and excess capacity, such reductions are outpaced by a decline
in sales.
Revitalization of Industry
In April 2003, the Japanese government established the Industrial
Revitalization Corporation of Japan (IRCJ)(*3), which is to
use ¥10 trillion of public funds to purchase problematic
loans from financial institutions with the intention of reviving
the businesses of their nearly 100 corporate borrowers within
five years. The IRCJ was created out of the belief that Japan
needed a major receiving body for soured corporate debt in order
to advance the riddance of bad loans.
Another reason for its creation came from the assessment that
fledgling private-sector "turn-around" consultant
firms would not be able to bail out Japan's numerous troubled
corporate borrowers on their own. In reality, however, the IRCJ
and private-sector firms are merely competing with each other
to find and bail out only a small number of cases. By the end
of November 2003, the IRCJ had worked out assistance terms with
only eight companies.
Banks have not presented as many corporate revival plans to
the IRCJ as expected. To address criticism from the banking
industry and the business community that its restructuring conditions
are too strict, the IRCJ decided in November 2003 to lower the
bar by allowing assistance terms that are more preferable to
companies. For example, the IRCJ may let a top manager stay
on if doing so suits the company's needs. Previously, resignation
of the management staff was required for receiving the assistance.
|
