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Strategies & Market Trends : The Stock Market Bubble -- Ignore unavailable to you. Want to Upgrade?

To: Les H who wrote (2190)	10/18/1998 1:55:00 AM
From: Box-By-The-Riviera™	Respond to of 3339

Sunday October 18, 12:46 am Eastern Time More dark clouds hang over Japan corporate sector By Miki Shimogori TOKYO, Oct 18 (Reuters) - Dark clouds are hanging over Japan's mighty corporate sector, whose postwar expansion was once hailed as a ''miracle'' by the world. The yen's steep rise and flagging Tokyo stocks are seen delivering a one-two punch to already shaky corporate earnings with the country suffering its worst postwar recession and a bad loan crisis in the banking sector, analysts say. ''It's possible that the gloom over corporate earnings will drag on, given the yen's strength,'' said Hiroki Matsushita, an analyst at Wako Research Institute of Economics. Hit by a sales slump at home and in Asia, current profits at non-financial firms listed on the Tokyo Stock Exchange's (TSE) first section are expected to have fallen some 30 percent year-on-year for the April-September period, analysts said. For the full year through next March, analysts said the firms were seen suffering a profit fall of well over 20 percent -- the first such drop in five years. Current profit is pretax and includes gains or losses on stock investments. ''There is virtually no good news on the corporate front,'' said Toshinori Ito, senior analyst at Daiwa Institute of Research said. ''Corporate earnings are trending down for now.'' Companies are in a vicious cycle under which poor sales has prompted them to streamline operations and cut salary payments, which further dampens consumer appetite. Firms are also cutting back investment plans, stalling economic activity in a nation mired in its deepest and longest recession since World War Two. The worsening business environment has already brought on a record level of corporate bankrputcies. Debts held by firms that went bust in September rose to a record high of over three billion yen ($26 million), with banks, saddled with bad loans, stepping up efforts to recover loans extended to companies. Also clouding companies' sentiment are falling Tokyo stocks, which should devalue their stock holdings. Daiwa Institute estimated that firms listed on the TSE's first section may suffer valuation losses of some 3.4 trillion yen on their stock holdings at the end of September, when the key Nikkei 225 index ended at 13,406.39, its 12-year-low. The yen's rise should also deal a blow to manufacturers' earnings, long the only bright spot in the nation's economy, by making their products less competitive overseas, analysts said. The dollar has sagged by over 20 yen this month to around 115 yen by Friday on heavy unwinding of yen carry trades by hedge funds, hit hard by losses on Wall Street and emerging markets. Tomoko Fujii, an economist at Salomon Smith Barney said, if the yen clings to the current level for long, that could help slash current profit at manufacturers listed on the TSE's first section by about 30 percent this business year. Top manufacturers such as Sony Corp and Honda Motor Co have partly hedged currency risks, but not all companies would be able to remain competitive. The global stock weakness could also tighten purse strings of the once free-spending American and European consumers, core buyers of Japanese goods, in the run up to the Christmas season, analysts said. ''The overall corporate profit climate is likely to get worse than what the market has already discounted,'' Fujii said. ''Companies will not be able to escape from this bad cycle unless the government decides on real fiscal spending of 10 rillion yen in November and conducts permanent tax cuts in January,'' Fujii said. Even with these steps, earnings would stop declining only in the latter half of next year, she said.