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




Focus is published and disseminated by JETRO New York, in coordination with KWR International, Inc., New York, NY 10023, Tel: 212-532-3005, Fax: 212-799-0517, E-mail:
. JETRO New York is registered as an agent of the Japan External Trade Organization, Tokyo, Japan and KWR International, Inc. is registered on behalf of JETRO New York. This material is filed with the Department of Justice where the required registration




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