Can Japan Maintain its Movement Toward an Economic Recovery?


NEW YORK--Aug 22, 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/focus26.html. A summary is posted below.

Investors Continue to Show an Increased Interest in Japan

For over a decade, investors have been underweight Japan, concerned
over the ability of Japanese leaders to confront problems facing the
Japanese economy. Current purchasing and the recent appreciation of
Japanese equities provides an indication perceptions are changing.

Japan's Economy Grows by Annual Rate of 2.3% in Second Quarter

In addition to 2.3% annualized growth rate in the second quarter -- marking six consecutive quarters of growth, capital investment has gone up five, and consumer spending seven quarters in a row. New job vacancies have surged, increasing nine consecutive months, including a 14.1% rise in June over the prior year.

Doubt Over Japan's Desire for Reform Now Shifts to Examining
Extent of its Problems

It remains to be seen whether the recent appreciation in Japanese equities reflects a sustainable improvement in Japan's fundamentals or a temporary cyclical upturn.

Identifying the Obstacles that May Constrain Economic Recovery in Japan

• Can Japan Resolve its Serious Non-Performing Loan Problem?
  
  One of the most critical problems facing Japan is
  non-performing loans (NPL). It is estimated approximately $369
  billion in bad loans remained as of March 2003 -- about 8% of
  Japan's GDP.
  
  
• Resona Recapitalization Marks Major Advance in Resolving
  Japan's NPL Problems
  
  Japan injected approximately $17 billion of public capital
  into Resona Bank - the fifth largest in Japan. This raised
  Resona's capital adequacy ratio to more than 12%. Senior
  managers were changed and shareholders forced to suffer a
  dilution of their holdings.
  
  
• IRCJ Sets Off Moves by Banks & Buyout Firms that Accelerate
  Restructuring Process
  Japan's new Industrial Revitalization Corporation (IRCJ) is
  moving to revitalize struggling companies that can reorganize
  themselves in three years. It is now conducting due diligence,
  with hopes of announcing its earliest targets as early as the
  end of this month.
  
  
• Japan's FSA Requires Troubled Banks to Submit Business
  Improvement Plans
  
  Japan's Financial Services Agency (FSA) will require 15
  financial institutions who have received public funds to
  submit business improvement plans by August 29, 2003.
  
  
• Can Japan Allow Bankruptcies & Continue to Enhance Corporate
  Governance?
  
  In spite of the pain that accompanies reform and a once
  unthinkable unemployment rate exceeding 5% since 2001 -- Japan
  continues to introduce regulatory reforms that facilitate
  stronger corporate governance and business reorganization.
  
  
• Japanese Firms and Investors are Still Adjusting to the
  Latest Regulatory Developments
  
  New regulations have and continue to be put into place, yet it
  is fair to say Japanese firms, shareholders and others need
  time to adjust themselves to this new corporate dynamic.
  
  
• Corporate Bankruptcies in Japan Declined Over the First Half
  of 2003
  
  Bankruptcies in Japan declined during first half of 2003.
  There were 8,984 cases during the January-June period -- the
  first time in four years bankruptcies came in below 9,000.
  Japan continues, however, to recognize restructuring and
  reorganization is desirable and essential.
  
  
• Can Japan Restore Domestic Consumer and Corporate Demand?
  
  Consumer optimism eroded with the collapse of Japan's "bubble
  economy" in the early 1990s. Positive data generated in recent
  months hopefully indicates a reversal of this trend.

Internationally-Focused Investors Clearly Need to Pay Closer Attention to Japan

Investors are advised to begin paying more attention to Japan and the many attractive opportunities that are emerging.

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