<Japan> Economy shows glimpses of LIFE.
Hi Lee:
Looks like not all is lost in Japan,get a load of this.
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Top News
Thu, 31 Dec 1998, 8:49am EST
Japan Economy Shows Glimpses of Life, May Pave Way for Growth in 1999
Tokyo, Dec. 31 (Bloomberg) -- A year ago, Japan's chief
economic planner confidently predicted the nation's economy
would start growing before the cherry blossoms bloomed on the
banks of Washington's Potomac River, in April.
The cherry blossoms have long since died, business
confidence is at a 4-1/2 year low and the planner, Koji Omi,
has lost his job. Yet after four straight quarters of economic
contraction, the world's second-largest economy is showing
glimpses of life that suggest the foundations are being laid
for higher corporate profits and renewed growth in the
business year beginning April 1.
Coca-Cola Co. sales are rising. Inventories and
bankruptcies are falling. Honda Motor Co. can barely keep up
with demand for its mini-vehicles. And personal computers are
flying off Tokyo store shelves.
All this is good news for recession-weary Asia because
Japan's economy accounts for about two-thirds of the region's
output of goods and services. Any growth will also help the
global economy, which faces a ''substantial risk'' of falling
into recession if Japan fails to recover, the World Bank said.
''We have an international responsibility to revive the
Japanese economy,'' said Takashi Imai, chairman of Nippon
Steel Corp., the world's largest steel producer, and head of
Keidanren, Japan's most influential business lobby. ''The next
few months are critical, but I'm hoping by the end of fiscal
1999 the economy will be on track to grow by 2 percent
annually.''
To be sure, no one expects dramatic recovery and not all
economists are convinced Japan will soon emerge from its worst
recession in more than 50 years. The Japanese government
expects 0.5 percent growth in the year beginning April 1,
following a 2.2 percent contraction in the year to March 31
and 0.7 percent the previous year.
In addition, Japan's eighth stimulus package in six
years, which emphasized public works spending at the expense
of a cut in sales tax for consumers, had the unwelcome side
effect of pushing up interest rates. The yield on benchmark 10-
year government bonds may rise as high as 2.54 percent next
year from a record low of 0.70 percent on Oct. 7, according to
20 economists and investors polled by Bloomberg.
Getting Better
Yet most executives say 1999 will almost certainly be an
improvement over 1998, and they are adjusting their sales and
profit targets to fit that expectation. Their confidence stems
in part from a belief the government's latest 24 trillion yen
($207 billion) stimulus package and its 60 trillion yen
bailout of Japan's banks will spark spending and enable banks
to start making more loans to companies next year.
''I'm expecting the Japanese economy to recover after
April,'' said Katsuhiko Kawasoe, president of Mitsubishi
Motors Corp., the fourth-largest automaker, which forecasts
7.3 percent higher sales in Japan in 1999 than this year.
''We feel like we're starting to come back,'' said Toyota
Motor Corp. President Hiroshi Okuda. Japan's largest automaker
is increasing domestic production 1 percent in 1999 to meet an
expected 6 percent jump in sales in Japan.
The auto executives noted that sales of mini-vehicles,
from Honda's Life wagon to Suzuki Motor Corp.'s Jimny sport-
utility and Kei car, rose 30 percent in November, the second
straight monthly increase. Honda is boosting production of
mini-vehicles by 30 percent this month and next.
Personal Computers
There are other signs of nascent growth. Sales of
personal computers, televisions, videocassette recorders,
washing machines and refrigerators are rising at large
electronics stores such as Laox Co. and Kojima Co. An industry
association expects higher sales of both audio and video
equipment next year, with particular growth in car navigation
systems and digital audio disc players.
''Some industry indexes suggest symptoms of a recovery in
consumer spending, and (sales of) some consumer products, such
as air conditioners and washing machines, suggest recovery,''
said Toshiba Corp., the world's biggest maker of notebook
computers.
Japan's personal computer market expanded 7.9 percent
between July and September from a year earlier, led by strong
sales of Sony Corp.'s VAIO laptop computers, Microsoft Corp.'s
Windows 98 operating software and Apple Computer Inc.'s iMac
PC, said IDC Japan Ltd., a research company.
Coca-Cola sales in Japan increased 4 percent in November,
the first rise since the world's largest soft-drink maker
increased prices at the beginning of the year, according to an
analyst survey of several bottlers in Tokyo.
Looking Up?
There's more. Public works starts rose 13.3 percent in
October on the year, following a 37 percent rise in September.
Inventories fell for the seventh consecutive month in
November, setting the stage for a recovery in industrial
production next year. Starts of owner-occupied homes funded
with government-backed loans have risen three months in a row.
And corporate bankruptcies fell 5.3 percent in November, the
first decline in 23 months.
If these trends continue, many companies can expect
higher net income in the year beginning April 1. For the year
that ends March 31, non-financial companies expect aggregate
profit to be 21 percent lower than last year after falling 81
percent in the first half, Bloomberg figures show.
''We expect profits will rise because the fall in
domestic demand has bottomed out, inventory restructuring has
been completed, the U.S. and European economies are strong,
and other company restructuring plans are taking effect,''
said Daiwa Securities Co. Daiwa, Japan's second-largest
broker, forecasts net income at non-financial companies will
rise an average 53 percent in fiscal 1999.
Cost Cutting
Expectations of profit growth and an end to the recession
next year stem in part from efforts by hundreds of
manufacturers, financial institutions, retailers and trading
companies to cut costs and streamline their operations at home
and overseas.
For example, Nissho Iwai Corp., the sixth-largest trading
company, said yesterday it plans to cut 1,100 jobs, or about
25 percent of its employees, and shut some overseas offices
because of Asia's recession.
Nissan Motor Co., the maker of midsize Maxima sedans,
plans to sell assets and slash costs to trim 1 trillion yen,
or about a quarter of its debt, by 2001. Mitsubishi Motors
plans to cut jobs and shave 350 billion yen in costs by March
2001 in its bid to earn a group profit next fiscal year.
Japan's top three airlines -- Japan Airlines Co., All
Nippon Airways Co. and Japan Air System Co. -- are also taking
steps to return to profitability by cutting jobs, lowering
fares up to 50 percent, canceling money-losing flights and
delaying aircraft purchases.
JAL, which has lost money the past five years, is
slashing 2,300 of 17,863 jobs by March 2002, mainly through
early retirement. It hopes to reduce interest-bearing debt by
210 billion yen to 1.29 trillion yen by March 2002.
Daiei Inc., Japan's largest retailer, plans to cut costs
by 40 billion yen by March 31, in part by shutting 19 money-
losing stores. Sogo Co., a parent company of the group that
operates 14 department stores overseas and 29 Japan stores,
will close its London outlet and won't open a planned store in
Australia.
The corporate retrenchment from overseas marks a reversal
from Japan's buying spree in the late 1980s and early 1990s,
when some U.S. politicians complained about Japanese purchases
of such landmarks as New York's Rockefeller Center. At home,
job cuts related to corporate restructuring have pushed up the
unemployment rate to a record 4.4 percent in November,
matching that of the U.S. for the first time.
Currency Fluctuations
One economic uncertainty next year is the yen, which has
risen 18 percent since Sept. 30 and was recently quoted at
115.41 to the dollar. The Japanese currency's continued
appreciation ''would be particularly unhelpful'' to the
economy, making its exports more expensive, the International
Monetary Fund said in a recent report.
Sony, which generates 70 percent of its sales overseas,
in October revised down by 100 billion yen its forecast for
group operating profit for the year to March 31 on
expectations the dollar would buy an average 115 yen in the
October-March period. That was down from earlier estimates of
135 yen.
At Sony, sales and operating profit drop 5 billion yen
when the dollar falls 1 yen, said Tamotsu Iba, executive
deputy president and chief financial officer. At Toyota, a 1-
yen drop in the dollar costs the automaker 10 billion yen in
operating profit.
''For a large part of manufacturing the big concern is
whether the yen is going to stay in the 110 to 120 yen range
because that's going to threaten profitability,'' said Richard
Jerram, an economist at ING Baring Securities (Japan) Ltd.
The yen-dollar relationship is especially important for
Japan's three top shipping companies -- Nippon Yusen KK,
Mitsui O.S.K. Lines Ltd. and Kawasaki Kisen Kaisha Ltd.
About three-quarters of the shippers' revenue is
generated in dollars so the companies lose money when they
bring profit back to Japan if the yen rises.
All three companies are forecasting better earnings for
the year ending in March. For the half-year to March 31,
Nippon Yusen based its forecast at 115 yen to the dollar,
Mitsui O.S.K. at 120 yen and Kawasaki Kisen at 125 yen. If the
yen strengthens, it will be difficult for them to meet their
goals, the companies said.
No New Spending
Growth in Japan next year is by no means assured as
prices fall and corporate capital spending plunges. Even as
consumers spend more on PCs and mini-vehicles, they're
spending less on travel and other cars, economists said.
With the economy still shrinking, Japanese companies plan
to cut spending on factories and equipment 1.1 percent in the
year to March and 1.9 percent in fiscal 1999, the government
said.
That may result in further cut jobs and retrenchment of
unprofitable operations, which will hurt trade and overseas
investment but should have a positive long-term impact. In the
next six months, however, many economists see higher
unemployment, more failures of bad debt-laden banks and large
companies and more mergers of companies fighting to survive.
The pessimism is reflected in the stock market, where the
benchmark Nikkei 225 index has fallen 9 percent this year and
64 percent since its December 1989 high, closing at 13,842.17
yesterday.
For Shoichiro Toyoda, Toyota's chairman, the depressing
numbers don't reflect the reality about Japan's economy.
''When confidence returns everything else should
improve,'' he said. ''Walking around town, it's hard to find
evidence of any recession.''
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