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Fujitsu Probe Fails to Dispel Investors’ Concerns About Nozoe Controversy

by on March 9, 2010

By Jason Clenfield and Pavel Alpeyev March 10 (Bloomberg) — Fujitsu Ltd. , the computer company embroiled in a dispute with its former chief, was inadequately probed by Japan’s main stock exchange over the disclosure of President Kuniaki Nozoe ’s resignation, investors said. The Tokyo Stock Exchange ended its probe of Fujitsu yesterday after determining the company didn’t mislead investors enough to warrant further action. In response, the nation’s largest provider of computer services said it will strive to disclose information appropriately. Fujitsu last week said it ousted the former president because of possible ties to a company with an “unfavorable reputation,” rescinding the earlier explanation he quit for health reasons. Nozoe’s dismissal was inappropriate, according to his lawyer. The bourse’s conclusions may prolong concerns over Fujitsu’s transparency, said Mitsushige Akino , a fund manager at Tokyo-based Ichiyoshi Investment Management Co. “We need to get to the bottom of why this happened,” said Akino, who oversees about $450 million at the Tokyo-based asset manager. “This doesn’t put the issue to rest.” Fujitsu, the worst performer on the Nikkei 225 Stock Average this week, may rebound because the exchange’s conclusion removes the risk of the stock being placed under special watch, Morgan Stanley analyst Masaharu Miyachi wrote in a report. Still, investors will probably remain concerned about corporate governance and the risk that former management had ties to inappropriate corporations, Miyachi wrote. “You have to be a little skeptical about the company’s governance and their stance on disclosure,” said Junichi Misawa , head of the equity investment division at Tokyo-based STB Asset Management Co., which manages the equivalent of $14 billion. “The explanation is still lacking.” Organized Crime Fujitsu shares began falling after Nozoe’s request to nullify his resignation prompted the Tokyo-based company to alter its explanation of the departure. Nozoe continued to have ties with an unidentified company even after Fujitsu told him that would be “inappropriate,” Fujitsu said in a March 6 statement. On Sept. 25, he accepted the board of director’s offer to resign, according to the statement. Nozoe, 62, was improperly forced out and he denies having ties to “anti-social forces,” or organized crime, as Fujitsu claims, said his attorney, Kei Hata . Fujitsu told Nozoe his relations with a fund involved in the potential sale of Fujitsu subsidiary Nifty Corp. was improper because the fund had connections with organized crime, Hata said in an interview. The fund didn’t have connections with “anti-social forces,” Hata said, declining to identify the fund. Etsuro Yamada , a Tokyo-based spokesman at Fujitsu, declined to elaborate beyond the company’s public statements when asked about Hata’s comments. ‘Strict’ Warning The Tokyo exchange yesterday said it issued a “strict” warning to Fujitsu for initially saying that Nozoe resigned for health reasons. Still, the inadequacy of the Sept. 25 disclosure wasn’t significant enough for investors to make erroneous investment decisions, according to the exchange. “We’re not an investigative body,” said Ikue Izawa, a spokeswoman at the bourse. “We share information and have links with the authorities but there are limits to what we can do.” While analysts at Morgan Stanley, Mizuho Securities Co. and Deutsche Bank AG have voiced concerns over Fujitsu’s disclosure practices this week following the dispute with Nozoe, some investors said the controversy may not last. “In a short period, investors will forget this unless there’s more hard news,” said Edwin Merner , Tokyo-based president of Atlantis Investment, which manages about $3 billion in assets. “In a few months, this will all be forgotten.” Nozoe’s Accomplishments During Nozoe’s 15-month tenure as chief, the company pushed forward with the sale of its hard-disk-drive business to Toshiba Corp. and agreed to outsource some chip production to Taiwan Semiconductor Manufacturing Co. , the world’s largest custom-chip maker, to cut spending. The company also sought to strengthen its operations in Europe by making Maarssen, Netherlands-based Fujitsu Siemens Computers Holding BV a fully owned subsidiary. The controversy comes at a time when the company is trying to transform itself into a provider of services similar to International Business Machines Corp. and moving away from unprofitable hardware businesses after posting a 112.4 billion yen ($1.25 billion) loss in the year ended March 2009. Fujitsu forecasts profit of 95 billion yen for this fiscal year. And while the stock exchange may have concluded its examination of Fujitsu, the concerns will likely linger, Ichiyoshi Investment ’s Akino said. “There’s a big grey area here and that grey area encourages speculation,” he said. “The company had relationships it shouldn’t have had, so people will say, ‘is that the kind of company this is?’” To contact the reporters on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net ; Pavel Alpeyev in Tokyo at palpeyev@bloomberg.net .

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Fujitsu Probe Fails to Dispel Investors’ Concerns About Nozoe Controversy

Fujitsu Probe Fails to Dispel Investors’ Concerns About Nozoe Controversy

by on March 9, 2010

By Jason Clenfield and Pavel Alpeyev March 10 (Bloomberg) — Fujitsu Ltd. , the computer company embroiled in a dispute with its former chief, was inadequately probed by Japan’s main stock exchange over the disclosure of President Kuniaki Nozoe ’s resignation, investors said. The Tokyo Stock Exchange ended its probe of Fujitsu yesterday after determining the company didn’t mislead investors enough to warrant further action. In response, the nation’s largest provider of computer services said it will strive to disclose information appropriately. Fujitsu last week said it ousted the former president because of possible ties to a company with an “unfavorable reputation,” rescinding the earlier explanation he quit for health reasons. Nozoe’s dismissal was inappropriate, according to his lawyer. The bourse’s conclusions may prolong concerns over Fujitsu’s transparency, said Mitsushige Akino , a fund manager at Tokyo-based Ichiyoshi Investment Management Co. “We need to get to the bottom of why this happened,” said Akino, who oversees about $450 million at the Tokyo-based asset manager. “This doesn’t put the issue to rest.” Fujitsu, the worst performer on the Nikkei 225 Stock Average this week, may rebound because the exchange’s conclusion removes the risk of the stock being placed under special watch, Morgan Stanley analyst Masaharu Miyachi wrote in a report. Still, investors will probably remain concerned about corporate governance and the risk that former management had ties to inappropriate corporations, Miyachi wrote. “You have to be a little skeptical about the company’s governance and their stance on disclosure,” said Junichi Misawa , head of the equity investment division at Tokyo-based STB Asset Management Co., which manages the equivalent of $14 billion. “The explanation is still lacking.” Organized Crime Fujitsu shares began falling after Nozoe’s request to nullify his resignation prompted the Tokyo-based company to alter its explanation of the departure. Nozoe continued to have ties with an unidentified company even after Fujitsu told him that would be “inappropriate,” Fujitsu said in a March 6 statement. On Sept. 25, he accepted the board of director’s offer to resign, according to the statement. Nozoe, 62, was improperly forced out and he denies having ties to “anti-social forces,” or organized crime, as Fujitsu claims, said his attorney, Kei Hata . Fujitsu told Nozoe his relations with a fund involved in the potential sale of Fujitsu subsidiary Nifty Corp. was improper because the fund had connections with organized crime, Hata said in an interview. The fund didn’t have connections with “anti-social forces,” Hata said, declining to identify the fund. Etsuro Yamada , a Tokyo-based spokesman at Fujitsu, declined to elaborate beyond the company’s public statements when asked about Hata’s comments. ‘Strict’ Warning The Tokyo exchange yesterday said it issued a “strict” warning to Fujitsu for initially saying that Nozoe resigned for health reasons. Still, the inadequacy of the Sept. 25 disclosure wasn’t significant enough for investors to make erroneous investment decisions, according to the exchange. “We’re not an investigative body,” said Ikue Izawa, a spokeswoman at the bourse. “We share information and have links with the authorities but there are limits to what we can do.” While analysts at Morgan Stanley, Mizuho Securities Co. and Deutsche Bank AG have voiced concerns over Fujitsu’s disclosure practices this week following the dispute with Nozoe, some investors said the controversy may not last. “In a short period, investors will forget this unless there’s more hard news,” said Edwin Merner , Tokyo-based president of Atlantis Investment, which manages about $3 billion in assets. “In a few months, this will all be forgotten.” Nozoe’s Accomplishments During Nozoe’s 15-month tenure as chief, the company pushed forward with the sale of its hard-disk-drive business to Toshiba Corp. and agreed to outsource some chip production to Taiwan Semiconductor Manufacturing Co. , the world’s largest custom-chip maker, to cut spending. The company also sought to strengthen its operations in Europe by making Maarssen, Netherlands-based Fujitsu Siemens Computers Holding BV a fully owned subsidiary. The controversy comes at a time when the company is trying to transform itself into a provider of services similar to International Business Machines Corp. and moving away from unprofitable hardware businesses after posting a 112.4 billion yen ($1.25 billion) loss in the year ended March 2009. Fujitsu forecasts profit of 95 billion yen for this fiscal year. And while the stock exchange may have concluded its examination of Fujitsu, the concerns will likely linger, Ichiyoshi Investment ’s Akino said. “There’s a big grey area here and that grey area encourages speculation,” he said. “The company had relationships it shouldn’t have had, so people will say, ‘is that the kind of company this is?’” To contact the reporters on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net ; Pavel Alpeyev in Tokyo at palpeyev@bloomberg.net .

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Fujitsu Probe Fails to Dispel Investors’ Concerns About Nozoe Controversy

Japan’s Deflation Concern Mounts Even as Economy Expands Most in Two Years

November 16, 2009

By Jason Clenfield and Tatsuo Ito Nov. 17 (Bloomberg) — The acceleration of Japan’s economy to the fastest growth pace in more than two years masked a slide in prices of goods and services that threatens to temper the nation’s recovery. The domestic demand deflator , a measure of price levels that excludes the cost of imports, fell 2.6 percent in the third quarter from a year earlier, the most since 1958, Cabinet Office figures showed yesterday in Tokyo. At the same time, gross domestic product jumped 4.8 percent, the most since early 2007. Sustained price declines threaten to curtail a corporate- profit rebound that’s already been insufficient to spur a rally in Japan’s shares this quarter. The report prompted Deputy Prime Minister Naoto Kan to say the government may outline an emergency-spending package as soon as today, adding that “I’m concerned we’re entering into a deflationary situation.” “This isn’t sustainable growth and the government knows it — that’s precisely why they’re talking about the GDP deflator,” said Junko Nishioka , chief economist at RBS Securities Japan Ltd. in Tokyo. “On the face of it, 4.8 percent growth is a positive for the Democrats, but they’re not reading it as a reason to abandon their economic policies.” Most stocks dropped yesterday, with the Topix closing at 860.42 at 3 p.m. in Tokyo, the lowest level since July 13. While the Nikkei 225 Stock Average rose 0.2 percent to 9,791.18, about four stocks retreated for every three that climbed. Pushing BOJ Kan also said yesterday that the government should work with the Bank of Japan to tackle the price slump. The central bank has kept interest rates near zero to help rekindle growth. Consumer prices in the world’s second-largest economy have fallen for seven straight months, undermined by the deepest recession in the postwar era. Deflation can undermine the economy by persuading companies and consumers to delay purchases in the anticipation of further price declines. It also increases the value of their debt. “Deflation is great if you don’t have debt,” Nishioka said. “But debt drives most economic activity. Companies take out a loan to build factories or you get a mortgage to buy a house. Those burdens get heavier when incomes start to fall.” The yen’s 6 percent gain against the dollar in the past three months has exacerbated the price slump by making imports cheaper. Even after seven months of gains in factory output , about one third of Japan’s factories sit idle . The Democratic Party of Japan took power in September pledging to support households that have endured 16 months of wage declines and unemployment that climbed to a record in July. ‘Biggest Worry’ “The biggest worry to us is that consumption growth has been too strong relative to incomes,” said Hiromichi Shirakawa , chief Japan economist at Credit Suisse Group AG in Tokyo, who used to work at the central bank. “It might be a decade before the job market returns to the level of health we had a year or two ago,” he said. “The number of jobs may recover but not wages. It’s very fragile.” A price war over jeans is a sign of that fragility. Discount retailer Don Quijote Co. last month started selling jeans for 690 yen ($7.70), undercutting Aeon Co., Japan’s largest supermarket chain, which has been offering them for about $9. Fast Retailing Co. , the operator of Uniqlo stores, started the battle in March with pairs at $11. “Japanese domestic demand is still dependent on price declines to grow,” said Naomi Fink , a strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. Contraction Continues Without adjusting for prices, Japan’s economy shrank an annualized 0.3 percent last quarter, the sixth straight contraction. The Democratic Party of Japan has signaled that these nominal figures will play a greater role in its policy making. “There’s been a tendency to focus on the price-adjusted figures,” Keisuke Tsumura , one of the DPJ’s top economic officials, said in an interview this month. “We’re going to try to strike a better balance in our decision-making that doesn’t ignore the nominal figures,” which he said better reflect the economy as households experience it. The government’s heightened concern about deflation may put it at odds with the Bank of Japan. While the central bank last month forecast prices will keep falling through the year ending March 2012, Governor Masaaki Shirakawa has said deflation is unlikely to weigh on economic growth. The central bank won’t have room to raise the benchmark interest rate from the current 0.1 percent until at least the end of 2010, according to 15 of 16 analysts surveyed by Bloomberg News last month. Double Dip Still, most analysts said yesterday’s report suggests Japan will avoid a double-dip recession. Domestic demand, which includes consumer spending and business investment , contributed two-thirds of the country’s growth last quarter. In the previous three months, exports led the economy’s first expansion in more than a year. “The composition of these numbers was a lot more encouraging than the second-quarter numbers, said Richard Jerram , chief economist at Macquarie Securities Ltd. in Tokyo. “It wasn’t the net exports story, it was a swing in private domestic demand, which brings some promise of greater stability.” To contact the reporters on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net ; Tatsuo Ito in Tokyo at tito2@bloomberg.net

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Japan’s Economy Expanded at 4.8% in Third Quarter, More Than Anticipated

November 15, 2009

By Jason Clenfield and Tatsuo Ito Nov. 16 (Bloomberg) — Japan’s economy grew at an annual 4.8 percent pace in the third quarter, the second straight expansion after the nation’s worst postwar recession. Gross domestic product accelerated from a revised 2.7 percent expansion in the three months ended June 30, the Cabinet Office said today in Tokyo. The median estimate of 20 economists surveyed by Bloomberg News was for 2.9 percent. Analysts had forecast growth to slow next year as the impact of stimulus spending wanes. A third of Japan’s factories still sit idle, forcing firms to delay hiring and investment that would help to sustain the revival. “Growth is still being driven by things that are temporary: the inventory cycle and fiscal stimulus,” Hiroshi Shiraishi , an economist at BNP Paribas in Tokyo, said before the report. “The main upside is emerging markets, which are doing quite a bit better than a lot of people expected.” The yen traded at 89.53 per dollar at 9:12 a.m. in Tokyo from 89.60 before the report was published. The currency’s more than 5 percent gain against the dollar over the past three months has made Japanese products more expensive abroad. The Nikkei 225 Stock Average rose 0.05 percent. Uncertainty about the economy’s long-term prospects has weighed on the stock average, which has fallen 1.8 percent since June 30, even as companies report improved earnings. Inherited Policies Investment by companies drove the growth acceleration. Capital spending rose 1.6 percent in the three months through September, the first gain in six quarters and faster than the 0.5 percent median estimate of analysts, the report showed. Business investment accounts for about 15 percent of the economy and drove more than a third of Japan’s growth between 2002 and 2007. Consumer spending, which makes up about 60 percent of the economy, climbed 0.7 percent, more than the 0.6 percent expected by economists. Exports increased 6.4 percent from the previous quarter, in line with analysts’ forecasts. Prime Minister Yukio Hatoyama’s Democratic Party of Japan inherited policies that helped prop up spending at home at the cost of increasing a debt that’s approaching double the size of GDP. The DPJ last month froze about 3 trillion yen ($33 billion) of the previous government’s 25 trillion yen in stimulus packages, saying it was wasteful, and is now contemplating whether to redeploy the cash this fiscal year. Extra Spending Plan Finance Minister Hirohisa Fujii said on Nov. 13 that today’s GDP report will be “one of the important factors” in deciding whether to compile an extra spending plan in the year ending March 2010. Stimulus from abroad has also spurred Japan’s growth. China’s 4 trillion yuan ($586 billion) in government spending on building projects and household subsidies helped Hitachi Construction Machinery Co. drain stockpiles and return to profit last quarter. Honda Motor Co. last month tripled its full-year profit forecast because of Chinese sales. Japan’s expansion since March doesn’t make up the ground lost during the previous four quarters of contraction, when the economy shrank to its 2003 size. Industrial production is still about 20 percent below last year’s level and the slump in domestic demand has depressed consumer prices , which have dropped for seven months. The Bank of Japan last month forecast deflation will persist through fiscal 2011, leaving little room to raise interest rates from near zero. Central bank Governor Masaaki Shirakawa on Nov. 7 pledged to maintain an “extremely accommodative monetary environment.” “Manufacturers are saddled with massive overcapacity so you can’t expect a strong recovery for quite some time. That’s a given,” said BNP’s Shiraishi. “That means this initial bounce-back in the economy won’t really accelerate.” To contact the reporter on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net ; Tatsuo Ito in Tokyo at tito2@bloomberg.net

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Japanese Machinery Orders Rise 10.5%, More Than Twice as Much as Estimated

November 10, 2009

By Jason Clenfield and Tatsuo Ito Nov. 11 (Bloomberg) — Orders for Japanese machinery rose more than economists estimated in September, signaling that a recovery in corporate profits may be encouraging firms to start spending on plant and equipment. Orders , an indicator of business investment in three to six months, climbed 10.5 percent from a month earlier, the Cabinet Office said today in Tokyo. The median estimate of 25 economists surveyed by Bloomberg was for a 4.1 percent gain. Today’s report suggests that Japanese companies are becoming confident enough to increase spending as their earnings recover since plunging in the first quarter of the year. Companies from Toshiba Corp. to Elpida Memory Inc. have announced plans to build new factories or increase capacity in the past month after beating their own earnings estimates. “The bottom is probably behind us for capital spending,” said Masamichi Adachi , a senior economist at JPMorgan Chase & Co. in Tokyo. “The retrenchment phase is over and the corporate sector as a whole should gradually pick up in a self-sustained way.” The yen traded at 89.75 per dollar at 8:54 a.m. in Tokyo from 89.76 before the report was published. A report due Nov. 16 will probably show Japan’s economy grew at a 2.9 percent annualized pace last quarter, according to the median estimate of economists surveyed by Bloomberg. It will be the second consecutive expansion since the economy emerged from its worst postwar recession and the first since Prime Minister Yukio Hatoyama’s government took power in September. Add to Growth Business investment may add to growth for the first time since the first three months of 2008, analysts predict. An increase in capital spending, which accounted for about a third of the economy’s growth during the six-year expansion that ended in 2007, would lend stability to a recovery that has depended on temporary factors including government stimulus and a rebound in production spurred by run down inventories. Improved earnings have provided companies with money to invest, while economic growth in Japan’s overseas markets has rekindled demand. Exports grew 10.4 percent last quarter from the previous period, according to Cabinet Office trade figures measured by volume. Pretax profit at the more than 900 Japanese companies that had announced earnings as of Nov. 10 doubled in the quarter ended Sept. 30 from the previous three months, according to data compiled by Bloomberg News. Even after the gain, profit was still 40 percent below the same period last year. More Spending Better earnings are already encouraging companies to spend. Toshiba, Japan’s biggest maker of semiconductors, said last month it will spend 25 billion yen ($277 million) to build a new lithium-ion battery plant in Niigata, northern Japan. Cost cuts last quarter helped the company narrow its loss to 200 million yen from 27 billion yen during the same period last year. Elpida Memory , Japan’s largest computer memory-chip maker, last week raised its estimate for capital spending in the fiscal year by 50 percent to 60 billion yen, citing increased orders for gear to make more advanced semiconductors. Shares of machinery makers have risen this year, with Fanuc Ltd. up 21 percent and Advantest Corp. climbing 41 percent. “Executives feel that we’ve escaped the crisis and now we have to think about a more normal situation,” said JPMorgan’s Adachi. “It’s less benign than in the five years through 2007, but there’s still going to be positive growth and you have to compete with competitors in Asia.” To contact the reporters on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net ; Tatsuo Ito in Tokyo at tito@bloomberg.net .

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U.S. Risks `Lost Decade’ Like Japan’s as Stimulus Ends, Nomura’s Koo Says

October 22, 2009

By Jason Clenfield and Norihiko Kosaka Oct. 23 (Bloomberg) — U.S. officials contemplating an exit from record fiscal stimulus are in danger of repeating mistakes that plunged Japan into its lost decade of stagnant growth, according to Richard Koo of Nomura Research Institute Ltd. “This isn’t a cold, its more like pneumonia,” said Koo, author of “Balance Sheet Recession,” a 2003 book about the malaise that hit Japan after its stock and real-estate markets crashed in 1990. “We still need more government spending,” he said, adding it could take “three to five years to get out of this mess, even under the best of circumstances.” Koo’s comments echo the view of economists including Nobel laureate Paul Krugman , who warn that the U.S.’s likely return to growth in the second half of 2009 doesn’t mean a sustained recovery is assured. The Obama administration aims to rein in a record $1.4 trillion budget deficit as growth returns, seeking to safeguard the value of a declining dollar. “If you learn your lesson from the Japanese experience, you don’t remove your fiscal stimulus until private sector de- leveraging is over,” Koo, 55, chief economist at the research arm of Japan’s biggest brokerage, said in an interview at his Tokyo office last week. “When we see the private sector coming to borrow again, I’ll be the loudest person on earth arguing for fiscal reform. That’s the exit.” Wealth Destruction Koo calculates that the bursting of Japan’s asset bubble in 1990 erased 1,500 trillion yen ($16 trillion) in wealth, equivalent to three times the size of the economy. Companies focused on repaying debt rather than undertaking new projects, causing demand to plummet and triggering a cycle in which cash flows fell, asset prices dropped and balance sheets deteriorated. This time it’s the U.S. consumer that’s inundated with debt. Household debt soared more than 10 percent each year from 2002 to 2005, when the economy expanded an average of 2.75 percent. Koo, who previously worked at the Federal Reserve Bank of New York, said the solution for what he calls a balance-sheet recession is sustained government spending to fill the hole left as households and businesses retrench. The Fed’s efforts, lowering the benchmark interest rate to near zero and pumping more than $1 trillion into the banking system, aren’t sufficient, he said. “We have zero interest rates and still nothing’s happening,” Koo said. Businesses and households don’t want to borrow money even at zero rates; they’re too busy rebuilding savings and paying off debt, he said. Preventing Collapse For Japan, it was only government spending that prevented a collapse potentially worse than the Great Depression, Koo argued in his 2009 book, “The Holy Grail of Macroeconomics: Lessons From Japan’s Great Recession.” A decade of investment in roads and bridges also led to a government debt nearing 200 percent of gross domestic product, the biggest among advanced economies. Krugman wrote earlier this month in the New York Times that “it’s time, I keep hearing, to shift our focus from economic stimulus to the budget deficit. No, it isn’t.” He added that “the complacency now setting in over the state of the economy is both foolish and dangerous.” The Commerce Department will probably report next week that the U.S. economy grew in the third quarter for the first time in a year. President Barack Obama’s administration is spending money to stem job losses while also trying to reassure the U.S.’s creditors it plans to rein in debt once a recovery is secured. The dollar has weakened against 15 of the 16 major currencies this year as the budget shortfall widened. Stimulus Spending The government’s $787 billion economic recovery plan swelled the federal budget gap to $1.42 trillion for the year ended Sept. 30, more than triple the $455 billion record set a year earlier, according to Treasury Department figures released last week. Fed Chairman Ben S. Bernanke said Oct. 19 the government should establish “a sustainable fiscal trajectory, anchored by a clear commitment to substantially reduce federal deficits over time.” Treasury Secretary Timothy Geithner said in an interview with CNBC broadcast Oct. 16 that “when we have an economy that’s growing again and we get unemployment down, we’re going to have to bring those deficits down.” Japan’s so-called lost decade, a period during which the economy slipped in and out of recession and grew at an average rate of about 1 percent a year, dragged on because the government was in a hurry to pay off debt, according to Koo. A telling example came in 1997 when, after a year of 2.6 percent growth, Prime Minister Ryutaro Hashimoto raised the sales tax, smothering consumer spending and squashing a recovery. “We had these false starts,” Koo said. “The economy would begin to improve and then we’d say ‘oh my god, the budget deficit is too large.’ Then we’d cut fiscal stimulus and collapse again. We went through this zigzag for 15 years.” To contact the reporters on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net ; Norihiko Kosaka in Tokyo at nkosaka1@bloomberg.net

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Japan’s Tankan Shows Companies Plan Deeper Spending Cuts as Profits Slump

October 1, 2009

By Jason Clenfield Oct. 1 (Bloomberg) — Japanese companies plan to deepen investment cuts as profits slump, inhibiting the recovery from the nation’s worst postwar recession, the central bank’s Tankan survey showed. Large businesses aim to cut spending 10.8 percent this year, more than the 9.4 percent planned three months ago, the central bank said in Tokyo today. Confidence at big manufacturers rose for a second quarter after plunging to a record low in March. Stocks fell, heading for their lowest close in two months, on concern demand will weaken once governments worldwide exhaust more than $2 trillion in stimulus spending. The yen’s 8 percent gain in the past three months is another blow to exporters such as Toshiba Corp. and Toyota Motor Corp., whose cost cutting has squeezed incomes and driven the jobless rate to a record high. “It’s going to take much longer for capex and consumer spending to rebound,” said Seiji Shiraishi , chief economist at HSBC Securities Japan Ltd. in Tokyo. “In a normal recovery, capital spending and private consumption come back after a time lag. What’s different this time is that the level of economic activity is just so low.” The Nikkei 225 Stock Average fell 1.4 percent to 9,990.03 at the lunch break in Tokyo. The yen traded at 89.84 per dollar from 89.89 before the report. The yield on Japan’s 10-year bond fell one basis point to 1.285 percent. Less Pessimistic The index of sentiment among large makers of cars, electronics and other goods climbed to minus 33 from minus 48 in June and a record low of minus 58 in March, the Bank of Japan said. A negative number means pessimists outnumber optimists. The improvement matched economists’ predictions and only brought the index on par with the level during the 2001 recession. Confidence among large service companies rose for a second straight quarter to minus 24 from minus 29. “An improvement in sentiment is nice, but as long as it doesn’t lead to more investment, it’s not useful for saying anything about the economy,” said Martin Schulz , senior economist at Fujitsu Research Institute in Tokyo. The capital spending plans are the worst for a September survey in at least 26 years. Large companies see profits falling 22 percent this fiscal year, the Tankan showed. “The figures are showing some improvement but there’s no change to my view that the economy is still severe,” said Hirofumi Hirano , chief spokesman of the Democratic Party of Japan-led government that came into power last month pledging to support households. Yen’s Gain The yen rose to an eight-month high of 88.24 earlier this week, making exporters’ products more expensive abroad and eroding the value of their repatriated profits. The gains prompted Finance Minister Hirohisa Fujii to backtrack on remarks that indicated he supported a stronger Japanese currency. The “current level around 90 yen is a bit painful,” Toyota Executive Vice President Yukitoshi Funo said on Sept. 25. “I think the yen should be a little weaker.” Large manufacturers expect the yen to trade at 94.50 per dollar in the year ending March 31, today’s report showed. Toyota, which has benefited from government programs to encourage spending on energy-efficient cars, yesterday said it will hire 1,600 temporary workers in Japan to meet increased demand for its Prius hybrid. Even after raising its production targets, Toyota estimates a third of its factory capacity will go unused this year. The company in August reiterated its plan to cut capital spending by 36 percent. ‘Still Worried’ “Companies are still worried whether demand overseas will reliably recover,” said Junko Nishioka , chief economist at RBS Securities Japan Ltd. in Tokyo. “Because of that uncertainty, the recent gains haven’t led to a boost in capital spending.” The effects of cost cuts are ricocheting through the economy. Reduced investment by electronics makers is taking a toll on companies such as Ishii Hyoki Co., a Hiroshima-based producer of equipment used to make circuit boards. The company, which had forecast earnings of 579 million yen ($6.5 million), said last month it’s now expecting a 393 million yen loss. Workers’ wages have fallen for 15 months, darkening the outlook for retailers including Seven & I Holdings Co. The Tokyo-based company may close about 30 of its Ito-Yokado Co. stores by February 2013, Nikkei English News said today. Japan’s retail sales fell 1.8 percent in August from a year earlier, the 12th straight decline, the Trade Ministry said today. Analysts forecast a report tomorrow will show the unemployment rate climbed to a record 5.8 percent in August. Companies are at least finding it easier to get access to funds. The Bank of Japan may decide as early as this month to let its emergency corporate-debt purchasing programs expire, according to people with direct knowledge of the discussions. Today’s Tankan surveyed 10,235 companies between Aug. 26 and Sept. 30. To contact the reporter on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net

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Japan Industrial Output Rises 1.8%, Longest Stretch of Gains in 12 Years

September 29, 2009

By Jason Clenfield Sept. 30 (Bloomberg) — Japanese manufacturers increased production for a sixth month in August, capping the longest winning streak in 12 years, as emergency spending by governments worldwide rekindled global trade. Factory output rose 1.8 percent last month after climbing 2.1 percent in July, the Trade Ministry said today in Tokyo. Economists surveyed by Bloomberg forecast a 1.8 percent gain. To contact the reporter on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net

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Japan’s Exporters Confront Fujii’s `Romantic Longing’ for a Stronger Yen

September 25, 2009

By Jason Clenfield and Toru Fujioka Sept. 25 (Bloomberg) — Japan’s exporters are in danger of being left behind by a global trade recovery as the nation’s change in government ushers in a tolerance for exchange-rate gains that threaten to erode their profits. Japanese exports fell 36 percent in August from a year earlier, the Finance Ministry said yesterday, an 11th straight decline. The drop was exacerbated by the yen’s 17 percent surge against the dollar in the past year, making Japanese goods more expensive abroad and hurting the value of repatriated earnings. Japan’s currency jumped to a seven-month high last week after Finance Minister Hirohisa Fujii , whose Democratic Party of Japan won elections promising to boost consumers’ purchasing power, said he didn’t support a “weak yen.” The comments suggested a change from the Liberal Democratic Party, which ruled for most of the past 55 years supporting the exporters that led growth . “You’ve got some romantic longing that maybe a strong yen isn’t such a bad thing,” said Jesper Koll , chief executive officer of hedge fund TRJ Tantallon Research Japan. “It’s a nice little policy that at the margins increases the purchasing power of Mr. and Mrs. Watanabe. The problem is that whether you like it or not, you are a net exporter. A stronger yen will eat further into the profitability of corporate Japan.” The currency’s gains have made it harder for Japanese exporters such as Panasonic Corp. and Toyota Motor Corp. to compete with rivals in South Korea. The Korean won has depreciated 23 percent versus the dollar in the past two years just as the yen surged 26 percent. ‘See the Damage’ “You can see the damage from the yen if you look at Japanese exports compared to Korean exports,” said Richard Jerram , chief economist at Macquarie Securities Ltd. in Tokyo. “Korea’s done much better over the last year and if you look at the won-yen exchange rate that tells you a lot of the reason.” Record sales helped Samsung Electronics Co. ’s profit climb 5.2 percent last quarter, while Panasonic suffered a net loss as revenue dropped 26 percent. Hyundai Motor Co. has taken market share away from Toyota: The South Korean carmaker’s U.S. sales dropped less than 1 percent in the first eight months of the year, while Toyota’s plunged 29 percent. “We’re affected by exchange rates, there’s no doubt about it,” said Paul Nolasco , a Tokyo-based spokesman at Toyota, which based its earnings estimates on the assumption that the yen will trade at an average of 92 to the dollar in the next six months. The automaker forecasts a 450 billion yen ($5 billion) net loss for the year ending March 2010. Competition From China Japanese companies also face competition from China, where authorities have stalled currency appreciation against the dollar since July last year to protect exporters. Chinese companies at a trade show in Shanghai this week urged the government to delay gains in the yuan. The yen rose to 90.74 per dollar at 1:44 p.m. in Tokyo, 0.6 percent higher than late yesterday. That’s stronger than the 97.33 level Japan’s exporters say they need to ensure a profit, according to a Cabinet Office survey released April 22. Exports helped lead Japan’s economy to grow for the first time in more than a year in the second quarter, ending the country’s worst postwar recession. During the election campaign, the DPJ, led by Yukio Hatoyama , said a stronger currency would benefit households by making imported goods less expensive. The emphasis on consumers contrasted with the LDP’s focus on corporate interests, analysts said. History of Intervention While LDP-led governments didn’t sell the yen in the past five years, they had a history of foreign-exchange intervention combined with support for the U.S.’s “strong-dollar” policy. The Bank of Japan, at the behest of the Ministry of Finance, sold yen and bought dollars on more than 40 days during the first quarter of 2004. “For the previous guys, there was an underlying doubt in the minds of the market that at some point they would intervene,” said Macquarie’s Jerram. “Fujii’s comments suggest the possibility is less under the DPJ.” Fujii said yesterday that “in principle, markets — the currency market, the stock market — are the stronghold of a free economy. I have been questioning the idea of easy intervention.” Goldman Sachs Group Inc. analysts are among those predicting the yen will decline because the Bank of Japan will refrain from raising interest rates longer than its counterparts, seeking to strengthen the recovery. Goldman Sachs forecasts it will weaken to 98 per dollar by the year-end. Seven-Month High The yen rose to a seven-month high of 90.13 on Sept. 16 after Fujii said he doesn’t support a weak-yen policy. The 77- year-old lawmaker moderated his tone two days later, when he said foreign-exchange rates should reflect economic fundamentals. The yen’s strength is already taking a toll on some Japanese companies. Canon Inc., the country’s biggest maker of office equipment, says every 1 yen increase against the dollar will lower its second-half operating profit by 4.2 billion yen. The company based its profit forecast of 110 billion yen on the assumption the yen would average 95 to the dollar in the last six months of the business year. “There are some factors that are not in our control,” said Richard Berger , a Tokyo-based spokesman at the company. “Changes in the exchange rate can have a serious impact on results.” To contact the reporters on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net ; Toru Fujioka in Tokyo at tfujioka1@bloomberg.net

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Japan Exports Tumble 36%, 11th Straight Decline, as Stimulus Efforts Fade

September 23, 2009

By Jason Clenfield and Kyoko Shimodoi Sept. 24 (Bloomberg) — Japan’s exports fell in August as the economic recovery struggled to gain traction. Shipments abroad dropped 36 percent from a year earlier, less than a 36.5 percent decline in July, the Finance Ministry said today in Tokyo. From a month earlier, exports fell 0.7 percent, the second straight drop, indicating the boost in demand from abroad that helped the economy expand in the second quarter may be fading. Some $2 trillion in spending by governments worldwide has boosted sales for companies from Toyota Motor Corp. to Sharp Corp., while material makers are filling orders from manufacturers rebuilding stockpiles. “So much of what’s keeping Japan’s economy going is temporary: the inventory, the stimulus measures,” said Junko Nishioka , chief economist at RBS Securities Japan Ltd. in Tokyo. “When the boost from those things fades, shipments — along with the growth they’ve brought — will flatten out.” Bank of Japan Governor Masaaki Shirakawa said last week he’s concerned the recovery may not outlast the worldwide stimulus packages that boosted demand for the country’s cars and electronics. The central bank cited exports as the main reason for raising its assessment of the economy last week, as record unemployment and slumping wages weaken consumer spending. Another headwind for Japanese exporters is an appreciating currency. The yen has gained more than 7 percent against the dollar in the past six months, threatening to erode companies’ profits earned abroad. China Exports Exports to China fell 27.6 percent from a year earlier. Shipments to the U.S. declined 34.4 percent, the least since November, and sales to Europe slid 45.9 percent. New Finance Minister Hirohisa Fujii said last week that he didn’t support a “weak yen,” causing the currency to surge. Investors are seeking to gauge the exchange-rate views of the Democratic Party of Japan-led government after it took power for the first time last week. Japan’s economy grew at an annual 2.3 percent pace in the second quarter, ending the country’s worst postwar recession. Global stimulus measures have also helped other Asian economies rebound. Singapore’s exports have risen in five of the past seven months on a seasonally adjusted basis. Declines in South Korea’s shipments narrowed to 21 percent last month from 35 percent in January. “There’s some month-to-month volatility, but you put it all together and things are clearly on an upward trajectory,” said David Cohen , director of Asian economic forecasting at Action Economics in Singapore. Record Sales Government incentives to encourage car-buying in the U.S., Germany and China are helping sales at automakers such as Toyota and Nissan Motor Corp . Auto sales in China, which this year became the world’s biggest car market, rose a record 90 percent in August. President Barack Obama’s “cash-for-clunkers” program helped U.S. car sales gain for the first time in almost two years last month. “The car companies have been huge beneficiaries of all of these stimulus packages,” said Kyohei Morita , chief economist at Barclays Capital in Tokyo. “It’s not misplaced money because auto production has such widespread knock-on effects on other manufacturers.” Parts suppliers such as Toyota Boshuku Corp. are seeing sales recover. The company said in July it plans to build a new domestic factory to supply Toyota with car seats. China’s 4 trillion yuan ($585 billion) stimulus package is also benefiting Japanese exporters. Sharp says subsidies for household appliances will help boost its China sales about 3 percent this year, even as revenues drop in the U.S. and Europe. Komatsu Ltd. ’s sales of construction equipment in China climbed about 60 percent last month. To contact the reporters on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net ; Kyoko Shimodoi in Tokyo at kshimodoi@bloomberg.net

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Japan’s Economy Grew 2.3% Annual Pace Last Quarter, Revised Figures Show

September 10, 2009

By Jason Clenfield and Tatsuo Ito

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Japan’s Economy Grew 2.3% Last Quarter, Less Than Initially Estimated 3.7%

September 10, 2009

By Jason Clenfield and Tatsuo Ito

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Japan Machinery Orders Fall More-Than-Estimated 9.3% as Recovery Weakens

September 9, 2009

By Jason Clenfield and Tatsuo Ito Sept. 10 (Bloomberg) — Japanese machinery orders fell more than economists forecast in July as declining profits forced companies to limit investment even amid signs overseas markets are recovering. Orders , an indicator of capital spending in the next three to six months, declined 9.3 percent from June, when they jumped 9.7 percent, the Cabinet Office said today in Tokyo. Economists surveyed by Bloomberg News projected a 3.5 percent decline. Companies including Toyota Motor Corp. are cutting costs to limit losses even after a rebound in demand helped Japan climb out of its worst postwar recession last quarter. More than a third of the country’s factory capacity is sitting idle, leaving little need for investment in plant and equipment, spending that last year made up 15 percent of the economy. “There’s been an enormous wave of confidence in the stock markets but that hasn’t been shared by business leaders,” said Martin Schulz , senior economist at Fujitsu Research Institute in Tokyo. “Producers know that lots of the improvement in exports and in the overall outlook has been on the back of government programs and they’re still troubled by the outlook.” More than $2 trillion in emergency spending by governments worldwide has fueled a global economic revival. China, Japan’s biggest export market, expanded 7.9 percent last quarter from a year earlier, while the U.S. shrank an annualized 1 percent, its best performance since the second quarter of 2008. GDP Growth Japan’s gross domestic product grew at a 3.7 percent annual rate last quarter, buoyed by exports and a stimulus package that spurred consumer spending on cars and electronics. Revised figures are due tomorrow. Economists don’t expect the rebound to last as the effects of the stimulus packages fade, forcing the Democratic Party of Japan, which won national elections on Aug. 30, to contend with a weakening economy. Companies plan to cut capital spending 9.2 percent this fiscal year, a survey published last month by the Development Bank of Japan showed. Reductions by manufacturers will be the steepest since 1993. Toyota, which estimates it will make about a third fewer cars this year than it has the capacity to build, said last month it will close an assembly line at its Takaoka plant in central Japan. The carmaker plans to cut capital spending by 36 percent in the year ending March 31. Loss Forecast Spending cuts by electronics-makers are taking a toll on companies such as Ishii Hyoki Co., a Hiroshima-based producer of equipment used to make circuit boards. The company, which had forecast earnings of 579 million yen ($6.3 million), said last week it’s now expecting a 393 million yen loss. “Orders are down and at this point it’s hard to make a forecast,” said company spokesman Hironobu Seo. “Our customers are running below capacity, so there isn’t much demand for new equipment.” Corporate cost cuts have also hurt Japan’s workers, darkening the outlook for retailers including Seven & I Holdings Co., which last month lowered its profit forecast and said it may close 20 supermarkets. The unemployment rate surged July to a record 5.7 percent in July and employees who have managed to keep their jobs have suffered unprecedented pay cuts . To contact the reporters on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net ; Tatsuo Ito in Tokyo at tito@bloomberg.net .

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Japan’s Economic Recovery May Falter as Companies Cut Investment, Payrolls

August 17, 2009

By Jason Clenfield and Tatsuo Ito Aug. 18 (Bloomberg) — Japan’s 3.7 percent economic expansion last quarter ended the country’s worst postwar recession. The bounce may be as good as it gets. Growth will slow to an annual 2.9 percent pace in the three months ending Sept. 30, according to the median forecast of 10 economists surveyed after yesterday’s gross domestic product report. Falling business investment and rising unemployment may hamper a recovery that has been fueled by $2.2 trillion in emergency spending by governments worldwide. Companies including Nikon Corp. and NEC Electronics Corp. are cutting costs and firing workers to narrow losses. Japanese will head to the polls for a general election on Aug. 30 against a backdrop of unemployment approaching a record high and a public debt that’s almost twice the size of the economy. “We have our doubts about the durability of this,” said Robert Feldman , head of economic research at Morgan Stanley in Tokyo. “There’s isn’t enough demand to get us back on a very strong recovery path. We don’t see a huge downside, but nevertheless the upside is pretty limited.” The Nikkei 225 Stock Average plunged the most in four months yesterday on concern growth will falter once the effects of government stimulus packages start to fade. Japan joins France and Germany in being the first Group of Seven economies to climb out of the global recession. Polls show Prime Minister Taro Aso’s ruling Liberal Democratic Party is likely to lose the lower house election to the opposition Democratic Party of Japan, which has never held power before. The DPJ would inherit an economy that after last quarter’s expansion is still at its 2004 size. ‘Temporary Factors’ “We’ve only recouped about a tenth of what we lost in the last year and what’s driving the recovery at the moment is essentially temporary factors,” said Hiroshi Shiraishi , an economist at BNP Paribas in Tokyo. Economists surveyed last month said growth will slow in each of the next three quarters and come to a near standstill in the three months to June 2010. Japan’s first expansion in five quarters was driven by exports that jumped 6.6 percent, led by demand from China, yesterday’s report showed. At home, Aso’s 25 trillion yen ($264 billion) in stimulus helped consumer spending rise 0.8 percent and government investment climb 8.1 percent. The sustainability of Japan’s recovery hinges largely on its overseas markets. A report last week showed confidence among U.S. consumers unexpectedly fell in August on concern over jobs and wages. Half the Pace Bank of Japan Governor Masaaki Shirakawa said last week that demand for the country’s products and services may not gain momentum. The central bank estimates Japan’s potential growth rate has fallen to about 1 percent, about half the pace achieved during the country’s six-year expansion through 2007. “It’s very simple: domestic demand is very, very weak and that’s about 70 percent of the economy,” said Seiji Shiraishi , chief economist at HSBC Securities Japan Ltd. in Tokyo. “Once the fiscal stimulus fades, the underlying trend will emerge, which is basically weak income and weak consumption.” A lack of demand is already weighing on prices, sparking concern that deflation may once again become entrenched in the economy. Consumer prices plunged a record 1.7 percent in June and yesterday’s GDP report showed wages fell a record 4.7 percent from a year earlier. “It’s going to be very hard to shake off the deflation,” said Richard Jerram , chief economist at Macquarie Securities Ltd. in Tokyo. “You don’t want to be too much of a spoilsport when there’s quite good headline growth numbers, but at the same time you can’t really ignore that prices are falling.” Being Cautious Businesses are also being cautious. Capital spending, which accounts for about 15 percent of the economy, fell 4.3 percent last quarter. A survey published this month by the Development Bank of Japan showed companies will cut fixed investment 9.2 percent this fiscal year. Reductions by manufacturers will be the steepest since 1993. Nikon, which is cutting 1,000 jobs, this month forecast a record 28 billion yen annual loss as customers scale back orders for semiconductor equipment. NEC Electronics is predicting its fifth straight year of losses and eliminating 1,200 jobs. Spending by companies “is likely to remain weak for at least another year,” said Julian Jessop , chief international economist at Capital Economics Ltd. in London. “A robust V- shaped recovery remains unlikely.” To contact the reporters on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net ; Tatsuo Ito in Tokyo at tito2@bloomberg.net

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Japan Emerges From Recession; Stocks Decline as Growth Misses Estimates

August 16, 2009

By Jason Clenfield and Tatsuo Ito Aug. 17 (Bloomberg) — Japan’s economy grew for the first time in five quarters as a revival in exports and consumer spending helped the country climb out of its worst postwar recession. Gross domestic product expanded at an annual 3.7 percent pace in the three months ended June 30, following an 11.7 percent decline in the previous quarter, the Cabinet Office said today in Tokyo. The median estimate of 22 analysts surveyed by Bloomberg News was for 3.9 percent growth. The recovery may not be sustained once the $2 trillion in worldwide stimulus that propped up sales for exporters from Toyota Motor Corp. to Kubota Corp. runs out. Some 40 percent of factories still sit idle, forcing companies to cut costs and leaving the winner of an Aug. 30 election with the challenge of staving off unemployment that’s approaching a record high. “The growth we’re seeing is based on government spending and a rebound from the very low level in the previous quarter,” said Seiji Shiraishi , chief economist at HSBC Securities Japan Ltd. in Tokyo. “Companies are burdened with huge overcapacity in terms of equipment and people. It’s much worse than in previous recoveries.” The yen traded at 94.64 per dollar at 9:24 a.m. in Tokyo from 94.76 before the report. The Nikkei 225 Stock Average dropped 1.4 percent, paring its advance to 48 percent since it touched a 26-year low on March 10. The yield on the benchmark 10-year bond fell one basis point to 1.365 percent. Led by Exports From the previous quarter , the world’s second-largest economy grew 0.9 percent. Economists estimated 1 percent. Exports led the expansion, jumping 6.3 percent from the previous three months. Net exports, or overseas shipments minus imports, contributed 1.6 percentage points to quarter-on- quarter growth. Japan’s recovery hinges largely on its overseas markets, which are showing signs of stabilizing. A report last week showed the euro area contracted 0.1 percent last quarter, the region’s best performance in more than a year. The U.S. shrank at an annualized rate of 1 percent, the least in a year. China , Japan’s top overseas market, grew 7.9 percent from a year ago. Confidence in the world economy surged to a 22-month high in August, according to a Bloomberg survey of users on six continents. The resurgence in demand from abroad wasn’t enough to convince companies to spend more on plant and equipment. Business investment, which makes up about 15 percent of the economy, fell 4.3 percent last quarter, today’s report showed. Consumer Spending Consumer spending, which accounts for more than half of the economy, rose 0.8 percent, adding 0.5 percentage point to the expansion, the Cabinet Office said. Prime Minister Taro Aso’s 25 trillion yen ($263 billion) in stimulus has lifted household confidence to its highest level since 2007. The packages, which include incentives to encourage the purchase of eco-friendly products, are the main reason Toyota is predicting its domestic sales will rise for the first time in five years. Aso’s ruling Liberal Democratic Party is likely to lose the lower house election to the opposition Democratic Party of Japan, which has never held power before. Some 43 percent of voters support the DPJ, almost double the 26 percent of those who support the LDP, a Nikkei Inc. and TV Tokyo Corp. poll released this month showed. Emergency spending by governments worldwide has buoyed sales makers of cars and electronics, and companies including Nippon Steel Corp. are filling orders from manufacturers restocking inventories depleted during the recession. Kubota is selling more farming equipment in China. Bank of Japan Bank of Japan Governor Masaaki Shirakawa said last week the recovery may not be strong and there’s no guarantee that demand for the country’s products and services will gain momentum. The central bank will keep the benchmark interest rate at 0.1 percent at least through 2010, according to economists surveyed by Bloomberg. Nippon Steel Corp. , the country’s biggest mill, this month restarted one of its idled furnaces to fill orders from makers of cars and electronics rebuilding inventories. The company is still running 25 percent below full capacity. Economists predict low production levels will drive the jobless rate to a record 5.8 percent next year from the current 5.4 percent. Japanese workers are also suffering unprecedented wage cuts that are likely to damp spending once the effect of the government’s stimulus package tapers off. Cost cuts by corporate Japan are taking a toll on companies such as Canon Inc. The nation’s biggest maker of office equipment last month forecast sales will drop 22 percent this year as clients limit spending on copiers and other business tools. To cope with that, Canon said it will pare its own expenses by 220 billion yen. To contact the reporters on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net ; Tatsuo Ito in Tokyo at tito2@bloomberg.net

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Japan’s Economy Expands Annualized 3.7%, Ending Worst Post-War Recession

August 16, 2009

By Jason Clenfield and Tatsuo Ito Aug. 17 (Bloomberg) — Japan’s economy grew last quarter as a global rebound helped the country climb out of its worst postwar recession. Gross domestic product expanded at an annual 3.7 percent pace in the three months ended June 30, following an 11.7 percent decline in the previous quarter, the Cabinet Office said today in Tokyo. The median estimate of 22 analysts surveyed by Bloomberg News was for 3.9 percent growth. The recovery may not be sustained once the $2 trillion in worldwide government stimulus that propped up sales for exporters from Toyota Motor Corp. to Kubota Corp. runs out. Some 40 percent of Japan’s factories still sit idle, forcing companies to cut costs and leaving the winner of an Aug. 30 election with the challenge of staving off unemployment that’s approaching a record high. “The growth we’re seeing is based on government spending and a rebound from the very low level in the previous quarter,” said Seiji Shiraishi , chief economist at HSBC Securities Japan Ltd. in Tokyo. “Companies are burdened with huge overcapacity in terms of equipment and people. It’s much worse than in previous recoveries.” Japan’s recovery hinges largely on its export markets, which are showing signs of stabilizing. A report last week showed the euro area contracted 0.1 percent last quarter, the region’s best performance in more than a year. The U.S. shrank at an annualized rate of 1 percent, the least in a year. China , Japan’s top overseas market, grew 7.9 percent from a year ago. Confidence in the world economy surged to a 22-month high in August, according to a Bloomberg survey of users on six continents. Optimism about Japan’s recovery has helped the Nikkei 225 Stock Average advance 50 percent since it touched a 26-year low on March 10. National Election Prime Minister Taro Aso’s ruling Liberal Democratic Party is likely to lose the lower house election to the opposition Democratic Party of Japan, which has never held power before. Some 43 percent of voters support the DPJ, almost double the 26 percent of those who support the LDP, a Nikkei Inc. and TV Tokyo Corp. poll released this month showed. Aso’s 25 trillion yen ($263 billion) in stimulus has lifted household confidence to its highest level since 2007. The packages, which include incentives to encourage the purchase of eco-friendly products, are the main reason Toyota is predicting its domestic sales will rise for the first time in five years. Emergency spending by governments worldwide has buoyed sales makers of cars and electronics, and companies including Nippon Steel Corp. are filling orders from manufacturers restocking inventories depleted during the recession. Kubota is selling more farming equipment in China. Lost Ground Bank of Japan Governor Masaaki Shirakawa said last week any recovery may not be strong and there’s no guarantee that demand for the country’s products and services will gain momentum. The central bank will keep the benchmark interest rate at 0.1 percent at least through 2010, according to economists surveyed by Bloomberg. Nippon Steel, the country’s biggest mill, this month restarted one of its idled furnaces to fill orders from makers of cars and electronics rebuilding inventories. The company is still running 25 percent below full capacity. Economists predict low production levels will drive the jobless rate to a record 5.8 percent next year from the current 5.4 percent. Japanese workers are also suffering unprecedented wage cuts that are likely to damp spending once the effect of the government’s stimulus package tapers off. Cost cuts by corporate Japan are taking a toll on companies such as Canon Inc. The nation’s biggest maker of office equipment last month forecast sales will drop 22 percent this year as clients limit spending on copiers and other business tools. To cope with that, Canon said it will pare its own expenses by 220 billion yen. To contact the reporter on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net ; Tatsuo Ito in Tokyo at tito2@bloomberg.net

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Japan Economy Probably Grew in Second Quarter as Exports, Spending Rebound

August 11, 2009

By Jason Clenfield and Tatsuo Ito Aug. 12 (Bloomberg) — Japan’s economy grew last quarter for the first time in more than a year as rebounds in exports and consumer spending helped the country climb out of its worst postwar recession, the government is expected to say next week. Gross domestic product expanded an annualized 3.9 percent in the second quarter, following a record drop of 14.2 percent in the three months ended March 31, according to the median estimate of 22 analysts surveyed before the report due Aug. 17. More than $2 trillion in emergency spending by governments worldwide has buoyed sales for car and electronic-makers, and companies like Nippon Steel Corp. are filling orders from manufacturers restocking inventories depleted during the recession. Some 40 percent of Japan’s factories still sit idle, forcing firms to cut jobs and investment to eek out profits. “The positive side of the story is that the worst is over,” said Tetsuro Sugiura , chief economist at Mizuho Securities Research Institute in Tokyo. “But the sustainability of the recovery is questionable. The second quarter is likely to be as good as it gets.” The world’s second-largest economy is emerging from recession ahead of a national election on Aug. 30 that polls show Prime Minister Taro Aso’s ruling Liberal Democratic Party is expected to lose. The opposition Democratic Party of Japan, which has never held power, would inherit a jobless rate near a postwar high and a public debt twice the size of GDP. The economy’s recovery hinges largely on the growth of its export markets. China , Japan’s top customer, expanded 7.9 percent last quarter from a year earlier, propelled by government spending and a boom in bank lending that some economists say may lead to a bubble. The U.S. shrank an annualized 1 percent, its best performance since the second quarter of 2008. Export Driven Japan’s growth last quarter was driven by exports that jumped 9.2 percent versus the previous three months, the first gain in three quarters, according to economist forecasts. Demand from China has helped to limit losses for companies including Komatsu Ltd. and Nissan Motor Co. Consumer spending, which makes up about 60 percent of the economy, probably rose 0.9 percent. Aso’s 25 trillion yen ($258 billion) in stimulus has lifted household confidence to its highest level since 2007. The packages, which include incentives to encourage the purchase of eco-friendly products, are the main reason Toyota Motor Corp. is predicting its domestic sales will rise for the first time in five years. Weak Recovery Optimism about the nation’s recovery has helped the Nikkei 225 Stock Average advance 50 percent since it touched a 26-year low on March 10. Some 15 percent of firms listed on the first section of the Tokyo Stock Exchange raised first-half earnings estimates since June, according to Tokyo-based Shinko Research. To be sure, Japan’s expansion in the three months through June 30 doesn’t make up the ground lost during the previous four quarters of contraction that shrank the economy to its 2003 size. Bank of Japan Governor Masaaki Shirakawa said yesterday there’s no guarantee that demand will gain momentum. “The bounce will recoup only a tenth of what we lost,” said Hiroshi Shiraishi , an economist at BNP Paribas in Tokyo. “If sales recover only to 80 percent of peak levels — and that’s what we expect — then quite a few firms will find it difficult to cover fixed costs. They’ll need to do more aggressive restructuring.” Nippon Steel, the country’s biggest mill, this month restarted one of its idled furnaces to fill orders from makers of cars and electronics rebuilding inventories. The company is still running 25 percent below full capacity. Record Unemployment Economists predict low production levels will drive the jobless rate to a record 5.8 percent next year from the current 5.4 percent. Japanese workers are also suffering unprecedented wage cuts that are likely to damp spending once the effect of the government’s stimulus package tapers off. Business investment, which makes up about 15 percent of the economy, probably fell 5.4 percent in the second quarter, economist predict the GDP report will show. Cost cuts by corporate Japan are taking a toll on companies such as Canon Inc. The nation’s biggest maker of office equipment last month forecast sales will drop 22 percent this year as clients limit spending on copiers and other business tools. To cope with that, Canon said it will pare its own expenses by 220 billion yen. “Once the impact of the inventory rebuild and fiscal stimulus fades, you’ll start to see the more negative side of the adjustment,” said BNP’s Shiraishi, referring to the job and investment cuts that companies are making. “It’s already happening underneath, but once the temporary factors supporting growth fade it’ll be more clear.” To contact the reporter on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net ; Tatsuo Ito in Tokyo at tito2@bloomberg.net

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Japan Machine Orders Rise for First Time in Four Months as Recession Eases

August 9, 2009

By Jason Clenfield and Tatsuo Ito Aug. 10 (Bloomberg) — Japanese machinery orders rose in June, ending a three-month streak of declines that came as companies cut costs to protect earnings. Bookings , an indicator of capital investment in the next three to six months, rose 9.7 percent from May, the Cabinet Office said today in Tokyo. The median estimate of 22 economists surveyed by Bloomberg was for a 2.6 percent increase. Signs Japan’s deepest postwar recession is moderating haven’t convinced manufacturers there will be a sustained revival in global demand. Companies including Toyota Motor Corp. are cutting capital spending, a driver of growth in past recoveries that made up 15 percent of gross domestic product last year. “The worst is definitely over in terms of earnings, but the incentive to invest is very limited in a world in which production levels are so low,” said Junko Nishioka , chief economist at RBS Securities Japan Ltd. in Tokyo. A survey published last week by the Development Bank of Japan showed Japanese companies will cut capital spending 9.2 percent this fiscal year. Reductions by manufacturers will be the steepest since 1993. Still, more than $2 trillion in spending by governments worldwide has stabilized global demand, supporting manufacturers such as Kubota Corp. , which is selling more farming equipment in China. Japan’s factory production rose 8.3 percent last quarter, rebounding from a record 22.1 percent plunge in the previous period. Better Profits Profit estimates for Japanese companies have been better than expected, helping lift the Nikkei 225 Stock Average 6.6 percent in the last month. Some 15 percent of firms listed on the first section of the Tokyo Stock Exchange have raised first-half earnings estimates since June, according to Tokyo- based Shinko Research, while 10 percent have lowered projections. “Earnings will probably keep improving gradually, but cash flows are very low,” said RBS’s Nishioka. “When companies are making the decision about whether to invest, what’s important isn’t how much sales or production are increasing, it’s the level that matters.” Toyota last week narrowed its loss forecast for the current business year, citing government incentives introduced in Japan, the U.S. and Europe to encourage car-buying. Even with an improved outlook, the company estimates it will sell 3 million fewer cars than it has the capacity to build. The automaker plans to cut capital spending 36 percent this year. Declining business spending is one of the reasons Japan’s recovery is forecast to lose momentum later this year. The world’s second-largest economy probably grew last quarter for the first time in a year, expanding at an annualized 3.8 percent pace after a record 14.2 percent contraction in the first quarter, according to the median estimate of 20 analysts. To contact the reporters on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net ; Tatsuo Ito in Tokyo at tito@bloomberg.net .

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Japan Factory Output Climbs, Taking Quarterly Gains to Fastest in 56 Years

July 29, 2009

By Jason Clenfield July 30 (Bloomberg) — Japanese manufacturers increased production for a fourth month in June, capping the fastest quarterly output expansion in half a century and helping the economy rebound from its deepest postwar recession.

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Japan Industrial Production Increases for Fourth Month as Exports Improve

July 29, 2009

By Jason Clenfield July 30 (Bloomberg) — Japanese manufacturers increased production for a fourth month in June, capping the fastest quarterly output expansion in half a century and helping the economy rebound from its deepest postwar recession. Production climbed 2.4 percent from May, when it rose 5.7 percent, the Trade Ministry said today in Tokyo. Economists surveyed by Bloomberg News estimated a 2.5 percent increase. Leaner inventories and more than $2 trillion in spending by governments worldwide stabilized global demand, supporting exporters including Mitsubishi Motors Corp.

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Japanese Exports Fell at Slower Pace in June as Global Recession Eases

July 22, 2009

By Jason Clenfield and Kyoko Shimodoi (Corrects to say surplus widened for first time in 20 months.) July 23 (Bloomberg) — Japan’s exports fell in June at the slowest pace this year as demand picked up worldwide, helping the trade surplus widen for the first time in 20 months and setting the stage for an economic recovery. Shipments abroad declined 35.7 percent from a year earlier, after dropping 40.9 percent in May, the Finance Ministry said today in Tokyo. The surplus widened to 508 billion yen ($5.4 billion). Faster growth in China is propping up sales for Japanese manufacturers including Komatsu Ltd

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Japanese Exports Decline at Slower Pace in June as Global Recession Eases

July 22, 2009

By Jason Clenfield and Kyoko Shimodoi (Corrects to say surplus widened for first time in 20 months.) July 23 (Bloomberg) — Japan’s exports fell in June at the slowest pace this year as demand picked up worldwide, helping the trade surplus widen for the first time in 20 months and setting the stage for an economic recovery. Shipments abroad declined 35.7 percent from a year earlier, after dropping 40.9 percent in May, the Finance Ministry said today in Tokyo.

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