Japan Inc, whose postwar economic miracle was the envy of the world, is losing its way in a prolonged business gloom and no silver lining is visible in the clouds, analysts say.
Hit by dwindling sales at home, Japanese companies are rushing to slash profit estimates for this business year and the scale of corporate bankruptcies is expected to swell to record levels.
The business situation will only get worse from now, said Rokuro Kuroda, a senior researcher at Tokyo Shoko Research Ltd. When you look around, you will find plenty of negative factors and its hard to find good ones, Kuroda said.
Japan has suffered a high level of business failures so far this year, with well-known companies such as retailer Yaohan Japan Corp and general contractor Tokai Kogyo Co Ltd collapsing under the weight of hefty debt accumulated during the late 1980s bubble era of inflated asset prices.
Second-tier brokerage Sanyo Securities Co Ltd joined the long list on Monday, when it sought court protection from creditors. It become the first listed brokerage to fail in postwar Japan and the eighth listed firm to go under this year.
The total number of corporate bankruptcies soared 11.1 percent year-on-year to 7,988 in the six months to September 30. Debts held by bankrupt firms totalled six trillion yen ($48.7 billion), the highest ever for the half-year period. The figure is expected to grow to total ten trillion yen ($81.3 billion) or even more in the current fiscal year, surpassing a record level marked in 1995/96, Kuroda said.
But the worst is not over yet. Bankruptcies will reach new peaks in the next fiscal year, Kuroda said, adding that a few more listed companies may go bankrupt by March.
Analysts say Japans business environment will remain shaky, as consumers have tightened their purse strings given an increased sales-tax burden and medicare costs.
Making the situation worse is the nations Big Bang financial deregulation programme, which has prompted banks to trim potential credit risk by refusing to extend loans to troubled firms.
A credit crunch is already there, since banks are becoming more selective about making loans, said Noriyoshi Kobayashi, a senior researcher at Teikoku Databank Ltd, a private credit research firm.
This came on the top of the economic slump. Theres not much room left for firms to cut costs further, as theyve already done what they can do.
Kobayashi said deregulatory steps planned by the government would be a further setback to already troubled small- to medium-sized firms. Many of them would be weeded out in the increased competition that would result, he said.
Big firms are also suffering.
Hiroki Matsushita, an analyst at Wako Research Institute of Economics, said that after two years of double-digit growth helped by the weak yen which boosted exports, current profits at major firms may grow only about five percent this fiscal year, far below the institutes initial 10.4 percent estimate.
The glum corporate picture is casting a long shadow over Tokyo stocks. Last week, the benchmark Nikkei average of 225 leading issues hit its weakest level in more than two years.
I believe the economy is already entering a downward cycle, said Masaru Takagi, senior economist at Fuji Research Institute. We will see more (economic) problems ahead.
Takagi said companies, especially in the financial and construction sectors, are still suffering fallout from the bursting of Japans late-1980s economic bubble.
Bankruptcies will not peak soon...If the situation remains as it is now, the jobless rate, already at a relatively high rate of 3.4 percent, will soar to around five to six percent in the next two to three years, Takagi said.
Some firms, especially in the troubled construction sector, are having to consider what was once believed unthinkable drastic layoffs, analysts said. The sector alone has seven million workers, about 10 percent of Japans total work force.
The only bright spot in the business arena is the export sector, but analysts say that fears of another trade row with the United States make it hard for Japan to boost exports to what is its biggest single export market.
The currency turmoil in Asia, meanwhile, is also likely to put a damper on Japanese exports to the region, which accounts for about 42 percent of the nations total exports.
I think Japans exports may continue to grow for now. But I must cast doubt over whether this alone will halt a decline in the overall economy, Takagi said. ($1 =123 yen)
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