The Japanese government yesterday launched a US$16.7 billion scheme to buy shares in companies threatened by the financial storm in a new move to ease the credit crunch that has starved key industries of cash.
Japan’s central bank is already buying corporate debt to help firms raise funds and the government has offered funds to help banks lend more. However, sliding exports and frozen credit markets still threaten industrial firms at the heart of Japan’s economy.
Confirmation of the capital injection scheme pushed Japanese stocks higher, taking the Nikkei share average’s gains for the day to 4.6 percent, but dragged on already falling bonds and the yen.
“For the moment, this is a positive for the stock market,” said Soichiro Monji, chief strategist at fund manager Daiwa SB Investments.
“Bankruptcies have been increasing, and not only among financial firms. There have been reports that funding has been tight at many large corporations. This is a plus in that it should help ease that funding squeeze,” Monji said.
Japan is following in the footsteps of the US, which has also gone beyond banks to bail out its auto sector on the argument that the credit crunch threatens firms by removing their access to cash.
Tokyo’s move may provide a lifeline for small and medium enterprises, which account for about 70 percent of employment in Japan and which are finding it much harder than big corporates to raise funds in the credit crunch.
While individually small, such firms are crucial suppliers to big brand manufacturers.
They have been hit hard by sliding demand for Japanese cars, technology and other exports, with industrial production sliding at a record pace and no signs yet of a turnaround.
“We want to support companies that we think are important for Japan and for regional economies, regardless of their size,” Japanese Economy, Trade and Industry Minister Toshihiro Nika said.
Japanese bankruptcies jumped 24 percent last month from a year earlier, including 33 among listed firms — the highest annual tally in at least 60 years.
The government capital will be provided through its affiliated banks buying shares in both listed and unlisted companies, the ministry said.
The ministry had set aside ¥1.5 trillion (US$16.7 billion) to cover any losses that result, an official said.
The money would only go to firms facing difficulty in fund-raising because of market turmoil, and those receiving the funds will be required to draw up plans to boost profitability within three years, the ministry said in a statement.
“We’re not specifying any sectors. Our ministry looks at manufacturers and companies in the service sector, but firms that are in the scheme aren’t limited to the sectors that our ministry oversees,” a ministry official said.
The government has not yet decided what class of shares would be bought, the official said, although Japanese media said at the weekend it would likely be through non-voting preferred stock.
In related news, South Korea has set aside around US$2.9 billion in emergency state funds that can be tapped to help the economy shake off its worst crisis in a decade, officials said yesterday.
The government has allocated four trillion won in reserve funds for this year, compared with 2.4 trillion won last year, the ministry of strategy and finance said.
It is the largest amount allocated to state emergency funds in six years.
“In the case of emergency, the government could tap the funds immediately without the need to seek a supplementary budget,” a ministry official told Yonhap news agency.
The government has announced extra spending and tax cuts worth billions of dollars to try to prop up the economy and is also frontloading this year’s budget spending in the first half as much as possible.
Last week South Korean President Lee Myung-bak replaced his finance minister and other key economic officials in an effort to better cope with the slump.
Asia’s fourth-largest economy shrank 5.6 percent quarter-on-quarter in the fourth quarter compared with a 0.5 percent expansion in the third quarter. It was the worst showing since the first quarter of 1998.
Year-on-year the economy shrank 3.4 percent in the fourth quarter compared with 3.8 percent growth in the third.
The annualized figure showed the biggest fall since the fourth quarter of 1998, when it contracted 6 percent.
For the whole of last year, South Korea’s economy grew 2.5 percent, sharply down from a 5 percent expansion in 2007.
The government’s forecast for this year is for 2 percent growth, but some think-tanks and investment banks are forecasting an outright recession.
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