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Japan to use reserves to fight crunch
March 4, 2009 - 8:49AM
Japan said on Wednesday it would use five billion dollars from its currency reserves to help companies raise funds as auto giant Toyota Motor asked the government for financial aid.
Tokyo's decision to dip into its one-trillion-dollar forex reserves underscores growing fears that a funding squeeze is deepening the country's worst recession in decades.
Finance Minister Kaoru Yosano described the move as an "extraordinary measure" in response to severe market conditions.
He said the government was also ready to use all means to tackle stock market swings, which could have a "devastating impact" on the economy.
Companies looking to borrow public funds through the state-backed Japan Bank for International Cooperation (JBIC) include Toyota Motor Corp.'s financial unit, which is reportedly seeking about two billion dollars.
Toyota Financial Services, which provides loans to car buyers, is in consultations with JBIC but the size of the loan has not been decided, company official Mio Sugito said.
"The international financial market is getting tighter, especially in the United States," Sugito said.
JBIC's main role is to invest in projects in developing countries, but the government in December decided as an emergency measure to allow the bank to lend to Japanese companies operating in developed countries.
The move comes amid concerns that firms are finding it increasingly hard to raise funds from distressed markets and cash-strapped banks.
"The economy is in an extremely abnormal situation," said Masamitsu Sakurai, chairman of the Japan Association of Corporate Executives.
"We want the government to take swift measures to boost the economy."
Toyota Motor ended General Motors' 77-year reign as the world's top selling automaker in 2008, but it has not been immune to the global economic downturn and expects its first ever loss in the current financial year to March.
Analysts, however, said Toyota does not face a cash crunch like its US rivals such as General Motors.
"This not like the case of GM," said Yasuaki Iwamoto, auto analyst at Okasan Securities.
"This is a positive strategy in which Toyota intends to use its credibility to secure cash flows so that it can cope with the tough situation in the United States," Iwamoto said.
Japan has already announced a series of steps to stimulate the economy, including a plan to hand two trillion yen (21 billion dollars) back to the public to kick-start consumer spending.
The government said last week that it had started work on an emergency plan to halt a plunge in share prices that Tokyo fears could deepen the recession in Asia's biggest economy. It did not say what form any action might take.
Japan is reportedly considering using public funds to purchase stocks and other assets directly from the market to prop up prices.
The Nikkei stock index has fallen more than 18 per cent in 2009, approaching levels last seen in 1982, after a record 42 per cent plunge last year.
The Nikkei ended down 50.43 points, or 0.69 per cent, at 7,229.72 Tuesday. At one point the index dipped below last October's 26-year closing low of 7,162.90 before rallying on hopes of market-boosting steps by the government.
"Market expectations for measures to boost share prices, which the government is currently preparing, still remain high," said Masatoshi Sato, a strategist at Mizuho Investors Securities.
March 4, 2009 - 8:49AM
Japan said on Wednesday it would use five billion dollars from its currency reserves to help companies raise funds as auto giant Toyota Motor asked the government for financial aid.
Tokyo's decision to dip into its one-trillion-dollar forex reserves underscores growing fears that a funding squeeze is deepening the country's worst recession in decades.
Finance Minister Kaoru Yosano described the move as an "extraordinary measure" in response to severe market conditions.
He said the government was also ready to use all means to tackle stock market swings, which could have a "devastating impact" on the economy.
Companies looking to borrow public funds through the state-backed Japan Bank for International Cooperation (JBIC) include Toyota Motor Corp.'s financial unit, which is reportedly seeking about two billion dollars.
Toyota Financial Services, which provides loans to car buyers, is in consultations with JBIC but the size of the loan has not been decided, company official Mio Sugito said.
"The international financial market is getting tighter, especially in the United States," Sugito said.
JBIC's main role is to invest in projects in developing countries, but the government in December decided as an emergency measure to allow the bank to lend to Japanese companies operating in developed countries.
The move comes amid concerns that firms are finding it increasingly hard to raise funds from distressed markets and cash-strapped banks.
"The economy is in an extremely abnormal situation," said Masamitsu Sakurai, chairman of the Japan Association of Corporate Executives.
"We want the government to take swift measures to boost the economy."
Toyota Motor ended General Motors' 77-year reign as the world's top selling automaker in 2008, but it has not been immune to the global economic downturn and expects its first ever loss in the current financial year to March.
Analysts, however, said Toyota does not face a cash crunch like its US rivals such as General Motors.
"This not like the case of GM," said Yasuaki Iwamoto, auto analyst at Okasan Securities.
"This is a positive strategy in which Toyota intends to use its credibility to secure cash flows so that it can cope with the tough situation in the United States," Iwamoto said.
Japan has already announced a series of steps to stimulate the economy, including a plan to hand two trillion yen (21 billion dollars) back to the public to kick-start consumer spending.
The government said last week that it had started work on an emergency plan to halt a plunge in share prices that Tokyo fears could deepen the recession in Asia's biggest economy. It did not say what form any action might take.
Japan is reportedly considering using public funds to purchase stocks and other assets directly from the market to prop up prices.
The Nikkei stock index has fallen more than 18 per cent in 2009, approaching levels last seen in 1982, after a record 42 per cent plunge last year.
The Nikkei ended down 50.43 points, or 0.69 per cent, at 7,229.72 Tuesday. At one point the index dipped below last October's 26-year closing low of 7,162.90 before rallying on hopes of market-boosting steps by the government.
"Market expectations for measures to boost share prices, which the government is currently preparing, still remain high," said Masatoshi Sato, a strategist at Mizuho Investors Securities.
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