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In cash-rich Japan, a fifth of firms now see risk of insufficient capital

11 Comments
By Tetsushi Kajimoto

One in five Japanese companies are worried they may not have sufficient capital if the coronavirus crisis persists, a Reuters poll showed on Thursday, underscoring how even some of the world's biggest cash-hoarding firms are bracing for prolonged pain.

Some 14% of firms also said they would consider tapping a proposed financing scheme by the government and public institutions if market conditions remain severe, while more than half said they could consider it depending on circumstances.

"If the current situation lasts for more than a year, we may not be able to hold out," a manager at a non-manufacturing company wrote in the poll, which was conducted from April 28 to May 15.

Japan plans to create schemes to inject capital into large and small companies suffering from the coronavirus pandemic, which has just pushed the world's No.3 economy into recession, with a far deeper slump expected this quarter.

The move would mark an escalation in the government's response to the crisis, which has so far focused on lending support for small firms.

Prime Minister Shinzo Abe last week lifted a state of emergency for 39 prefectures, but in eight remaining areas including Tokyo, authorities are still asking people to stay at home and many businesses to close their doors.

Of the 21% of the firms who said they were worried about being short of capital, transport firms, utilities, retailers, steel and car manufacturers were among those most concerned, the survey showed.

Japanese firms have often been criticized for hoarding huge levels of cash while refraining from boosting wages and capital expenditure. Some respondents, who answered the questionnaire on condition of anonymity, stressed that the strategy was proving to be the right one during a time of crisis like now.

In Japan, listed firms held cash and savings totaling a near record $2.47 trillion on their balance sheets at end-December, central bank data shows, with their cash-to-sales ratio exceeding their peers in other advanced nations.

Asked about prospects for their business results in the first half of this year, 42% expect to post losses while 41% see big drops in profit. Just 16% expect to be in the black to the same extent as the year before.

If the crisis is prolonged, 13% see their current store of funds lasting only six months, 21% see it lasting one year, while 62% expect it to last for more than a year, the survey showed.

"We're staying out of debt at the moment, but we would step up fundraising if the coronavirus crisis continues for a long period of time," wrote a manager at a precision machinery maker.

The government's proposed capital injection scheme is likely to be part of fresh stimulus steps which will be funded by a second extra budget for the current fiscal year that began in April.

Plans call for state-affiliated lenders to invest in ailing companies by offering subordinated loans or accepting preferred shares.

A slight majority of firms said they saw no immediate end to the impact from the pandemic on their business, though that was down from 60% in last month's poll. Nearly a quarter saw drops in sales and output of 30-80% compared with 11% in last month's poll.

Japan has reported more than 17,049 cases of the coronavirus and over 769 deaths.

The Reuters Corporate Survey, conducted for Reuters by Nikkei Research, canvassed 499 big and midsize non-financial companies, with around 220-230 of the firms answering questions on their funding outlooks.

© (c) Copyright Thomson Reuters 2020.

©2020 GPlusMedia Inc.

11 Comments
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How can I not shed a tear for Japan Inc!

Theres a lot of money out there.

The 20% are the small one-man (woman) businesses that rely on regular physical customer interactions.

4 ( +4 / -0 )

So the answer to the second to last crisis of capitalism, in the 1970s, was to move from a Keynesian model to neoliberalism. When the last crisis hit in 2008 and neoliberalism was shown to be a failed approach, there was just a doubling down rather than a serious rethink because major governments have become corporate states. This latest crisis, at least in Japan and the US, appears to be another doubling down, with the people's and future generations' wealth flowing to investors and large corporations instead of taking the opportunity to shift to an economy for the people, of the people, by the people. We seem to like justice, an equal opportunity to participate in national and local government decision making process, and a fair share of public goods in our society. That is to say we still seem to value democratic processes. So why don't we also have these in our working lives?

7 ( +7 / -0 )

@warispeace that last sentence that you said, was a very good point. Or at least, I especially agree with that last sentence.

Even though I didn’t agree with everything you had to say in your comment, I definitely sympathize with what you’re saying, about doubling down with neoliberalism. The reason why I don’t entirely agree, is that during this time when people are really struggling, we can’t afford to be too picky about what sort of economic model we want. What’s important, in the short term at least, is there get all these people that are out of work jobs again, and then focus on changing economic model later.

Yes, it’ll make it more difficult in the long run to change it, but would you like to be the one to say to all these people are desperately looking for work but they have to wait until we can change the model? I’m not trying to be rude or mean or anything like that, so please don’t take it that way.

1 ( +1 / -0 )

@JCosplay

Thank you for your feedback. You make an important point about the timing and speed. What I'm thinking is, for example, offering financial support to those laid off workers who want to build cooperatives or when a firm is bailed out, instead of government getting a capital stake, provide workers with an ownership share so they could have more input into their own working conditions. Basically, leverage these conditions to enhance workers' rights and opportunities. Hope this clarifies a little more.

1 ( +1 / -0 )

"...but they have to wait until we can change the model?"

The model is being changed as we speak, regardless of whether policymakers or corporate exec realize it. Neo-lib policies are being quietly abandoned. Mr. Abe isn't talking much about "free trade" like the TPP or "market liberalization" much these days, you may have noticed.

Instead, it's about massive govt and central bank intervention. Pursing "free-market" policies at this point would sink our economies once and for all.

1 ( +1 / -0 )

The model is being changed as we speak, regardless of whether policymakers or corporate exec realize it. Neo-lib policies are being quietly abandoned. Mr. Abe isn't talking much about "free trade" like the TPP or "market liberalization" much these days, you may have noticed.

Koizumi and Abe has been privately touting themselves as students of Milton Friedman and Ronald Reagan, the asshats who are responsible for neoliberal hellscape today. Folks in Bank of Japan are students of Keynes with the mixture of neoliberalism. Abe, Aso and Koizumi idolized Margaret Thratcher who sold the British economy for American bidders. The UK does not produce and export much as their industries are taken by Europeans and Americans. The atrocious American healthcare firms are trying to kill the NHS as we speak. If this neoliberal future is what Abe and Aso want to bring upon the Japanese people, I expect Japan will become a Banana Republic.

Don't be mistaken! Abe and Aso aren't on the side of Japan as they are pickpocketing all the valuable wealth of Japan before escaping the country for good.

1 ( +1 / -0 )

That has always been the case. The capital markets here are dysfuntional. When's the last time you heard the phrase "venture capital" used accurately here?

0 ( +0 / -0 )

The crisis just reaffirm Japanese companies strategy to save a large percentage of their profit.

0 ( +0 / -0 )

Folks in Bank of Japan are students of Keynes with the mixture of neoliberalism. 

Actually, they are hardcore Neo-libs, as they got their masters degrees in the US in the late 70s to 80s, when universities' economics programs taught the gospel of Milton Friedman, according to a German prof who once served as an intern at the BOJ.

Koizumi and Abe has been privately touting themselves as students of Milton Friedman and Ronald Reagan,

They are regretting that now, assuming they have an iota of a sense of reality.

1 ( +1 / -0 )

They are regretting that now, assuming they have an iota of a sense of reality.

Their biggest regret is the inability to commence a successful Olympics. I don't that anyone of Japanese politician has a sense of reality as most of them still think Japan is the center of the world like the 1980s. The only woke politicians in Japan are the Communists of the JCP because they exactly know the issues and rally people around it. Too bad, they aren't going to win because the US hates a wild card interference in the obedient world of Japan.

0 ( +0 / -0 )

I have learnt alot from japanese companies, it depends on how internationally, they run their business. In my 31 years in japan, i saw profitable companies actions, to state that they have no profit because they have the stamp of the accountant or the kansayaku.

0 ( +0 / -0 )

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