Businesses & Investors Perceive a Change in Japan's Economic Prospects


NEW YORK--July 16, 2003

The Japan External Trade Organization New York (JETRO NY) released a newsletter today highlighting changing business and investor sentiment toward Japan. It can be viewed at: http://www.jetro.org/newyork/focusnewsletter/focus25.html.

Investor Sentiment Toward Japan is Beginning to Improve

-- Japanese equity funds are enjoying dramatic inflows and the Nikkei recently rose 20% off its April low to a 10-month high.

-- CSFB recently raised Japanese equities from 12% underweight to a 2% overweight position. Merrill Lynch also upgraded Japan to "neutral" from" underweight".

-- Volume on the Tokyo Stock Price Index over the past few weeks has been at its highest level in more than ten years.

Japanese Executives Are Also More Positive About Their Prospects

-- Last month's "Tankan" survey showed large Japanese companies have become less negative in recent months.

-- Japanese private machinery orders are also rising. This indicates renewed confidence by industrial producers.

Nevertheless, Japan Still Faces Serious Obstacles and Risk Factors

Investor and business optimism should not be interpreted as a sign the nation has overcome the many difficulties that must be addressed to achieve a sustainable recovery.

-- Can Japan Adapt to Higher Interest Rates? While the recent surge in long-term Japanese rates was described by one analyst as indicating that" Japan's all-out attack on deflation is finally gaining credibility," higher rates will place a strain on the debt load of borrowers.

-- Will There be a Pickup in Demand? Fear of deflation and anemic economic growth has contributed to weak consumer and business demand. While the Tankan survey suggests this may change, it is not clear whether demand will expand sufficiently in the foreseeable future to constitute a source of sustainable growth.

-- Can Japan Sustain the Movement Toward Economic Reform? The need to expand on progress that has been achieved remains critical and many difficult issues remain to be resolved.

Progress Can Only Be Sustained Through Further Improvements in the Real
Economy

There are many examples of sustainable change in Japan.

Businesses Begin to Embrace the Change now Occurring in Japan

There are signs Japanese firms are recognizing the need for change. Foreign companies also recognize the transition taking place.

-- Japan now accounts for 60% of Citigroup's total overseas earnings. Citigroup presently has 10% of its total equity invested in Japan.

-- Japanese-led restructurings include the recent case of Kenwood, an audio equipment manufacturer that recently posted its first consolidated net profit in four years.

-- Another significant Japanese restructuring includes the spin off of NEC's semiconductor division. It will be launched in an IPO on July 24th.

-- Changing business practices among Japanese financial institutions have raised the market for syndicated bank loans from zero in 1997, to an estimated 12 trillion yen in 2002.

Japanese Government Maintains its Commitment to Economic Reform

The Government of Japan has increasingly recognized the important role it plays in helping to increase the attractiveness of doing business in Japan. Recent developments include the following:

-- To facilitate foreign investment, "Invest Japan" liaison offices were opened in May at all government agencies, ministries and the Cabinet office.

-- Japan's Industrial Revitalization Corporation of Japan (IRCJ) opened its doors on May 8th. Possessing a five-year mandate, the IRCJ plans to revitalize at least 100 firms.

-- The Japanese government injected 2 trillion yen in public funds into Resona Holdings, Japan's fifth-largest bank last May, marking the first effective nationalization of a banking institution using new emergency assistance measures.

-- To promote the benefits of geographical diversity, 117 Special Zones for Structural Reform have been established as of May of this year.

Continuing Progress Will Lead to More Opportunities for Businesses and Investors

Whether or not one believes Japan has truly hit bottom and the present appreciation in the Nikkei index reflects its underlying fundamentals, it is important to recognize Japan's underlying potential, the changes taking place and the opportunities that they offer.

Data and statistics have been compiled by JETRO from publicly-released media accounts. JETRO does not guarantee their accuracy, and any such information should be checked by the reader before they are used to make any business or investment decision.



Contact:

Satoshi Miyamoto
JETRO NY
Tel. 212/997-0416
Fax: 212/997-0464
Satoshi_Miyamoto@jetro.go.jp