Financial Sector

April 2005

Fukui Insists That Economy Will Rebound After Spring
Bank of Japan Governor Toshihiko Fukui remained optimistic about the nation's economic outlook Wednesday despite a recent central bank survey indicating a sharp decline in business sentiment. The BOJ on the same day convened a policy board meeting and decided to leave its loose monetary policy unchanged. In explaining the decision after the meeting, Fukui told a news conference that the nine-member board was not unanimous in reaching the conclusion. "Inventory adjustments in the information technology sector will run their course soon, boosting exports and production," Fukui said. "We saw no reason to revise our assessment that the economy will come out of its soft patch in the spring or afterward." Because the BOJ's March tankan survey released Friday showed a drastic weakening in business sentiment among major manufacturers, the focus at the news conference was whether Fukui would change his prediction for the timing of an economic rebound. But Fukui seemed fully confident about his recovery scenario, repeatedly noting that inventories at information technology firms continue to decrease and that "a fundamental mechanism for an improvement remains in place." In fact, in its Monthly Report of Recent Economic and Financial Developments for April released Wednesday, the central bank also maintained its assessment that despite the corrections in the IT sector, the economy "remains on a recovery track." Regarding the possible termination of the bank's quantitative easing policy, Fukui stated that one policy board member proposed "making minimum adjustments (in the policy) to reflect the softening demand for liquidity in the money market." This board member apparently voted against retaining the target for the balance of current-account deposits at "the 30-35 trillion yen range," breaking the board's 15-month tradition of making unanimous decisions. This member called for a slight lowering of the balance, but all other members voted for keeping the target intact. With commercial financial institutions no longer requiring as much funds as before, the surplus cash on hand is now starting to be blamed for helping raise property prices in central Tokyo. But Fukui rejected calls for a swift policy amendment, arguing that "no conclusion should be reached without thorough discussions on economic developments, the degree of stability of the nation's financial system and other factors." Commenting on Friday's introduction of a deposit guarantee cap, the BOJ governor said that "no deposit exodus from certain financial institutions or sectors is observed," and therefore he believes the ceiling reinstitution was "smooth as expected." He also mentioned the recent declines in yield on treasury bills, noting that this shows "the dwindling uncertainty of the market outlook." (The Nihon Keizai Shimbun; April 07, 2005)

Transparent Accounting Rules Being Drafted For Smaller Firms
The Japan Chamber of Commerce and Industry and three other organizations plan to map out new accounting guidelines for small and midsize businesses by May in an effort to make their finances more transparent, The Nihon Keizai Shimbun learned Tuesday. The four groups hope that creating the guidelines will encourage banks and other financial institutions to provide loans to smaller firms. The Ministry of Economy, Trade and Industry will join in the groups' efforts by promoting programs to nurture experts who will help smaller companies adopt the new guidelines. The four bodies, which include the Accounting Standards Board of Japan, the Japanese Institute of Certified Public Accountants and the Japan Federation of Certified Public Tax Accountants' Associations, have already started working to unify different sets of existing accounting guidelines for smaller businesses. Adopting the new format will not be mandatory. But the ministry hopes that in three years, about 300,000 of the roughly 1.2 million unlisted companies with capital of less than 300 million yen will compile financial statements based on the guidelines. Under this system, small and midsize businesses will use simpler versions of the income statements and balance sheets that listed firms are required to compile. On their balance sheets, for example, smaller firms will partly adopt mark-to-market accounting for their stock and other securities holdings instead of assessing these assets at book value. Smaller companies will thus use market value in evaluating securities held for short-term investment purposes, but they will not have to do so for stocks that are held for the long term -- to maintain business ties, for example -- and represent a small portion of their total assets. Also, smaller firms will not have to fully adopt asset impairment accounting, which requires businesses to book an impairment loss if the fair value of an asset significantly drops from its carrying value. Having auditing companies compile financial statements usually costs millions of yen, so many unlisted smaller firms are inclined to formulate simple statements just for filing tax returns.
(The Nihon Keizai Shimbun, April 06, 2005)