UPDATE 2-Japan lending fall matches biggest in 4 yrs

(For more stories on the Japanese economy, click [ID:nECONJP])

* Weak credit demand casts doubt on BOJ’s new scheme

* Japan current account surplus hits two-year high in March

* Corporate bankruptcy debt hits 35-year low in April

* Service sector sentiment rises to 3-year high
(Adds bankruptcy, service sector sentiment data)

By Hideyuki Sano

TOKYO, May 13 (BestGrowthStock) – Japanese bank lending fell in April
from a year earlier, matching the biggest decline in four years
and showing that companies’ funding needs remain weak despite an
economic recovery and recent easing steps by the central bank.

To stimulate more spending in new business areas, the Bank of
Japan said last month it would consider new ways to bolster
growth and many analysts expect a new facility aimed at banks
that make loans to areas with growth potential.

But they also believe such a scheme is unlikely to pull Japan
out of its current liquidity trap, with companies and consumers
so pessimistic about the economic outlook that no amount of cheap
funding coaxes them to borrow.

“Nominal economic growth is still low so there’s not much
corporate demand for funds,” said Takeshi Minami, chief economist
at Norinchukin Research Institute in Tokyo.

“I don’t think the new loan programme being examined by the
Bank of Japan will help much. It’s capital markets, not banks,
that are good at funnelling money efficiently to companies with
growth potential. The Bank of Japan has no role to play here.”

Outstanding loans held by Japanese banks fell 1.8 percent in
the year to April, matching the annual decline in March, which
was the biggest fall in four years. [JPBNK=ECI]

Strong exports to Asia and government stimulus have helped
the Japanese economy recover since the second quarter of last
year but many economists think the recovery will remain slow and
vulnerable to shocks such as the European debt crisis.

Companies are still cautious about increasing spending. They
are also holding plenty of cash after borrowing more than they
needed to last year when they were worried about the credit
crunch, reducing the need to borrow.

Deflation is also seen persisting for at least another year.
That could hamper borrowing as deflation makes the real cost of
borrowing higher than nominal interest rates.

The BOJ, which has kept interest rates at 0.10 percent since
late 2008, has eased policy twice in recent months by offering
cheap funds to banks. The bank will hold its next policy meeting
on May 20-21.

Underscoring the nascent economic recovery and the lack of
corporate need for loans was a 13.2 percent decline in Japanese
corporate bankruptcies for April from a year earlier to 1,154
cases.

Total debt involved plunged 48 percent to 270 billion yen
($2.9 billion), the lowest since August 1975. [ID:nTKC005826]

Japan’s service sector sentiment index, seen as a good
leading indicator on the economy, also rose to a three-year high.
[ID:nTKB006834]

Other data showed Japan’s current account surplus rose 65
percent in March from a year earlier to its biggest amount in two
years, as exports steadily pick up thanks to brisk demand,
particularly from Asia.

The surplus stood at 2.5 trillion yen, above a median
forecast for 2.1 trillion yen, and marking the biggest gain since
March 2008 when it reached 2.9 trillion yen. [JPCURA=ECI]

The hefty surplus is also a reflection of huge savings within
the Japanese economy which provide some buffer against concerns
over the country’s deteriorating public finances.

Japan’s public debt is larger than that of any other
developed economies, including Greece, but its borrowing costs
have remained low because of domestic savings.

Penny Stocks
(Additional reporting by Tetsushi Kajimoto; Editing by Edwina
Gibbs)

UPDATE 2-Japan lending fall matches biggest in 4 yrs