Abe Bold Easing Plan Fails to Lift Caution at NEC: Japan Credit

Japanese Prime Minister Shinzo Abe’s plans for “bold” monetary easing won’t tempt NEC Corp. and Fujifilm Holdings Corp. to borrow more this year as sluggish global demand outweighs the appeal of record-low interest rates.

Outstanding loans at Japan’s 11 biggest banks fell 0.1 percent to 195.1 trillion yen ($2.22 trillion) in November, bringing their three-year decline to 6 percent, according to Bank of Japan data. Kenji Sukeno, Fujifilm’s vice president in charge of financing, said costs are already close to zero and there is no need to borrow more as the company is holding investments unchanged due to Europe’s debt crisis.

“It’s doubtful more monetary easing can lower the rates much further,” Sukeno said Dec. 20 in an interview with Bloomberg News at the office-equipment maker’s Tokyo headquarters. “The going concern now is the extent to which the European economy can recover.”

That pessimism doesn’t bode well for Abe, who won a landslide election victory last month on a pledge the central bank would adopt unlimited cash printing and a 2 percent inflation target. The BOJ plans a 15 trillion yen infusion of low-cost loans to banks starting June to help turn around an economy headed for its third quarterly contraction.

Interest rates averaged a record low 0.79 percent in the first 10 months of 2012, BOJ data show. That compares with an average 266 basis-point spread over the London interbank offered rate for U.S. dollar loans in Asia outside of Japan.

“The interest rates won’t be sufficient to spur corporate borrowing,” Tsuyoshi Ueno, a senior economist at NLI Research Institute, said in a telephone interview from Tokyo. “The uncertainty over where the global economy is headed is a huge factor” in determining credit demand, Ueno said.

Corporate Bonds

Elsewhere in domestic credit markets, Japanese companies raised 8.22 trillion yen in bond offerings last year, little changed from 8.27 trillion yen in 2011, according to data compiled by Bloomberg. Sales of yen-denominated notes by overseas borrowers, known as Samurai, dropped 6.7 percent to 1.995 trillion yen in the period, after rising 4 percent from 2010, the data show.

Corporate bonds in Japan returned 1.3 percent in 2012, compared with a 1.8 percent gain for the nation’s sovereign debt and 4.7 percent for Samurais, according to Bank of America Merrill Lynch indexes. Company notes worldwide returned 10.8 percent.

The benchmark 10-year bond yield rose 3 1/2 basis points, or 0.035 percentage point, to 0.83 percent today, the most since Sept. 13. Yields fell 18 1/2 basis points last year. The yen traded at 87.76 against the dollar at 2:53 p.m. in Tokyo, from 76.91 at the end of 2011.

Sovereign Risk

Five-year credit-default swaps insuring Japan’s sovereign debt were at 75.5 basis points yesterday, according to data provider CMA, which is owned by McGraw-Hill Cos. The contracts, which ranged from 66.5 to 154.1 last year, fell 61.5 basis points in 2012, the first yearly drop since 2006, the data show. The swaps pay the buyer face value in exchange for the underlying securities if a borrower fails to meet debt agreements.

Capital spending in Japan increased 2.2 percent in the quarter ended Sept. 30, decelerating from 7.7 percent in the previous three months to the slowest pace in a year, the Ministry of Finance said last month. Japanese companies are becoming more cautious as global economic woes reduced exports to Europe and China, the ministry said at the time.

Spending Freeze

NEC’s expenditures, forecast to increase 19 percent in the year ending March 31, 2013, will probably remain unchanged at 50 billion yen over the next period, Chief Financial Officer Isamu Kawashima said in an interview in Tokyo on Nov. 27. The company is focusing on paying down debt, Kawashima said.

The Tokyo-based maker of laptop computers and software solutions has 70 billion yen of bonds maturing by September, according to data compiled by Bloomberg. NEC hasn’t sold notes since June 2011, even though its average weighted coupon is 0.9 percent, the data show.

Fujifilm expects capital spending to remain little changed at about 100 billion yen for the fiscal year ending March 2014, after increasing outlays 21 percent in the 12 months to March 31, 2013, Sukeno said. Most of the expenditures will go toward covering depreciation costs, he said.

The copier maker raised 130 billion yen in its first offering of non-convertible bonds Nov. 27, according to data compiled by Bloomberg. The three-tranche sale included 60 billion yen of 0.33 percent five-year notes priced at a 15 basis-point spread, the data show.

“If there is an acquisition opportunity offering attractive synergies, we may consider it,” Sukeno said. “There are no plans for big spending in the meantime.”

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