UPDATE 3-Japan bank lending slides as funding demand weak

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

* Bank lending posts biggest fall in more than 4 years

* Current account surplus jumps on strong exports

* BOJ’s Yamaguchi: Japan may hit soft patch early this year

* Bankruptcy cases drop to 2-year low

* Sentiment improves among service sector workers
(Adds bankruptcies, service sector data)

By Rie Ishiguro and Tetsushi Kajimoto

TOKYO, Feb 8 (BestGrowthStock) – Japanese bank lending logged its
biggest annual fall in more than four years in January as
companies faced with overcapacity and a murky economic outlook
steered clear of borrowing for capital investment purposes.

The softness in domestic demand could also be seen in Japan’s
current account surplus, which surged more than fivefold in the
year to December thanks to a recovery in exports.

While that bodes well for the outlook for an export-led
recovery, Bank of Japan Deputy Governor Hirohide Yamaguchi said
the economy could linger in the doldrums until around the summer
before getting back on a more sustainable course to recovery.

“We expect the recovery to continue, but the economy will be
in a severe condition until the summer. Quarter-on-quarter growth
won’t be big, and we may even hit a soft patch,” Yamaguchi told
parliament’s lower house budget committee.

Many analysts expect economic growth to slow down early this
year as the government has suspended some public works project
plans drawn up by the previous government to reallocate funds for
its own policy steps.

The Bank of Japan in December decided to offer banks more
short-term funds, caving in to pressure from the government for
more action to fight deflation and support the economy ahead of
elections in the summer.

But Monday’s data showed that the cash is not spreading
through the economy as funding demand remains anemic.

Bank lending fell 1.5 percent in January from a year earlier,
BOJ data showed. That followed a 1.0 percent drop the month
before and was the largest fall since September 2005. [JPBNK=ECI]

“The drop (in bank lending) is mostly a reaction to the sharp
gain last year — but it also shows that fund demand is weak even
though banks are easing their lending attitude,” said Junko
Nishioka, chief economist at RBS Securities.

Bank lending has been falling in much of the developed world.
U.S. bank credit slumped 7.3 percent in December. In the euro
zone, bank loans to the private sector were flat in December
after falling 0.7 percent in November.

Financial markets brushed off the Japanese data, with many
market players more concerned about the fiscal woes in Europe.

CURRENT ACCOUNT SURPLUS JUMPS

Japan’s current account surplus rose 452.8 percent in the
year to December, supported by a recovery in exports, which some
said would continue to support the economy. [JPCURA=ECI]

The balance of payments slipped to a rare deficit last
January as the financial crisis battered exports and cut gains in
overseas investments. It has been in the black since then.

“U.S gross domestic product is looking very strong, and
emerging markets are also doing well, so Japan’s exports are
likely to remain strong for a while,” said Yoshiki Shinke, a
senior economist at Dai-ichi Life Research Institute. “The risk
of a double-dip recession in Japan is very small.”

Japan’s economy, the world’s second biggest after the United
States, has been growing since the second quarter of last year as
government stimulus measures worldwide help to boost exports,
particularly to China and other Asian countries.

But many firms are reining in business investment due to
excess capacity, with capacity utilisation still about 20 percent
below its level before the global economic crisis.

Still, a survey of taxi drivers, hotel employees, restaurant
staff and other service sector workers called “economy watchers”
for their proximity to consumer and retail trends found that
sentiment improved for the second month running in January.
[JPEWDI=ECI]

But economists say consumers are likely to tighten their
belts due to falling incomes, fuelling concerns about deflation,
where buyers put off spending to wait for yet lower prices.

The central bank has kept interest rates near zero and
introduced several emergency funding schemes to help the economy
recover from its worst slump since World War Two, but it has been
bombarded by government calls for more.

Analysts say the government fears falling prices and a strong
yen could push Japan back into recession ahead of upper house
elections this summer. The government’s own policy options are
limited with national debt nearing 200 percent of GDP.

Japan’s corporate bankruptcies fell 21.8 percent in January
from a year earlier to their lowest level in more than two years,
Tokyo Shoko Research said on Monday. [JPBARC=ECI]

But the total debt involved, at 2.6032 trillion yen ($29
billion), was the biggest amount for the month of January since
World War Two, due to the collapse of Japan Airlines Corp
(9205.T: ), it said.

Stock Basics

(Editing by Hugh Lawson)

UPDATE 3-Japan bank lending slides as funding demand weak