Tue, Feb 25, 2003 page12

• Japanese say war will harm spending

  CONSUMER SENTIMENT With exports accounting for a tenth of Japan's GDP, major corporations fear that demand from overseas would plummet if the US invades Iraq

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  Matsushita Electric Industrial Co, Fuji Photo Film Co, Pioneer Corp and other Japanese companies say a US-led war in the Persian Gulf will crimp demand for their products around the world amid slowing economic growth at home.

  Any US and UK military assault on Iraq to force it to comply with UN resolutions to disarm threatens to dent consumer confidence and hurt purchases of Japanese goods, and raise costs, according to Matsushita and other exporters based in the world's second-biggest economy.

  "If war breaks out few people will be in the mood to go shopping for home theaters," said Katsuhiro Abe, executive vice president of Pioneer, Japan's biggest maker of car navigation systems, which also makes DVD recorders and plasma-display panels.

  Exports account for about a tenth of Japan's gross domestic product. Executives say they fear higher oil prices and restrictions on shipping by air and sea will make it more expensive to get products to foreign markets, paring overseas profits while companies struggle with weak spending in Japan.

  The country, which posted economic expansion of 0.3 percent last year, needs global growth to sustain its recovery from a third recession in a decade, according to a government report released last week.

  A war in Iraq may force flights to divert from conflict areas, while government demand for cargo space on ships will leave less room for private companies, said Tadakatsu Hasebe, president of Sony Logistics Corp, the Sony unit that ships PlayStation game consoles, CD players and other consumer electronics to stores.

  Matsushita, the world's biggest consumer-electronics maker, on Thursday said tension in Iraq had increased uncertainty over the US economy and also threatened other economies.

  The company, which makes Panasonic DVD players, mobile phones and microwave ovens, cut its full-year net income forecast by a third to Japanese Yen 25 billion (US$211 million) because of a slump in the value of its shareholdings and costs related to reorganizing overseas subsidiaries.

  Fuji Photo, the world's second-largest photography company, last month said it was worried that a war in Iraq could damp demand for its film and other products.

  For the fiscal fourth quarter, "we can't be bullish," said Tasuku Imai, senior executive vice president on Jan 31. While the company maintained a forecast for net income of Japanese Yen 65 billion for the 12 months to March 31, Imai said the Japanese film company and copier machine maker would probably not do better than expected.

  Ministers from the G7 industrialized nations recognized "that the geopolitical situation is an important backdrop and is influencing markets and serving as a restraint on capital expenditures," US Treasury Secretary John Snow said in Paris on Saturday after his first meeting with other G7 ministers. The US buys a quarter of the goods Japan exports to the rest of the world.

  The US and the UK have 225,000 troops ready to launch an attack on Iraq in a region that accounts for almost nine tenths of Japan's oil imports. Secretary of State Colin Powell said yesterday that the US will probably seek Security Council backing after March 7 for a new resolution condemning Iraq for failing to disarm.

  Beyond the cost to companies, Japanese taxpayers may again be asked to contribute if the US and UK attack Iraq. Japan paid US$14 billion toward the cost of the Gulf War in 1991 after criticism from Washington it needed to help protect the supply of oil. This time, Japan's economic situation will likely make such a role difficult.

  "Our country's financial standing is very different from that during the Gulf War," Foreign Minister Yoriko Kawaguchi said yesterday on NHK television.

  While a short war would limit the effect on Japan and its economy, companies are assessing the damage any spread in the conflict may cause, including a threat to the security of vital transport routes, among them the Suez Canal, the main artery for Japanese goods sailing to Europe.

  "If both the Suez Canal or the Strait of Hormuz closed we would have to cancel some service or we would have to make some of the vessels deviate around Africa," said Ken Ogasawara, a spokesman for Nippon Yusen, Asia's largest shipping company. That additional 10 days of sailing time would cost the company Japanese Yen 40 billion a month, he said.
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