UPDATE 1-Japan bank lending in biggest annual fall in 5 yrs

* May bank lending falls 2.0 pct yr/yr, 6th month of declines

* BOJ’s new loan scheme unlikely to boost lending – analyst

* April current account surplus expands 88 pct yr/yr
(Adds details, analyst quotes)

By Rie Ishiguro

TOKYO, June 8 (BestGrowthStock) – Japanese bank lending marked its
biggest annual fall in nearly five years in May, as companies
remained reluctant to boost capital spending even as the economy
recovers and the central bank has eased policy.

The declines in recent months have been exaggerated by a
comparison with strong fund demand a year ago, when companies
were still relying more than usual on bank lending in the
aftermath of the global financial crisis.

Even so, companies are in no mood to increase lending now
with market jitters over the European debt crisis and the yen’s
gains against the euro clouding the outlook, analysts say.

“Declines will likely moderate from June onward. Still,
companies are still focused more on trimming debt, so I don’t
think fund demand will pick up any time soon,” said Takeshi
Minami, chief economist at Norinchukin Research Institute.

“The euro’s weakness and uncertainty about overseas economies
may make companies even more hesitant to borrow for capital
spending.”

Bank lending fell 2.0 percent in May from a year earlier,
dropping for the sixth straight month and marking the biggest
annual decline since July 2005, the Bank of Japan said on
Tuesday. [JPBNK=ECI]

The euro hovered near an 8-1/2-year low against the yen
(EURJPY=R: ) hit on Monday as markets continued to fret over
Europe’s banking system woes.

The Bank of Japan has kept interest rates near zero and
outlined last month a new loan programme aimed at encouraging
commercial banks to lend more to industries with growth
potential. [ID:nTOE64K025]

It is expected to announce details of the scheme at its
policy-setting meeting next week or in July at the latest.

But analysts say the programme is unlikely to do much to
boost bank lending.

“The measure the BOJ is considering will not be a real
solution. It’s conceived essentially to cooperate with the growth
strategy the government plans to announce this month. The steps
alone will not do much to boost lending,” said Junko Nishioka,
chief Japan economist at RBS Securities.

Japan’s incoming Prime Minister Naoto Kan is expected to
announce a new cabinet lineup later on Tuesday after the abrupt
resignation of his predecessor last week.

The new government is set to outline details this month of
its strategy to boost the economy by supporting new areas of
growth such as the environment, healthcare and tourism.

Japan pulled out of recession in April-June last year, helped
by a rebound in exports and a rise in consumption due to a
government stimulus package.

Underlining Japan’s export-led recovery, the current account
surplus expanded 88 percent in April from a year earlier,
Ministry of Finance data showed on Tuesday. [JPCURA=ECI]

Investing Basics

(Additional reporting by Hideyuki Sano, writing by Leika Kihara;
Editing by Michael Watson)

UPDATE 1-Japan bank lending in biggest annual fall in 5 yrs