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Thursday, Dec. 2, 2010

EDITORIAL

Cautious after impressive half

Firms listed on the first section of the Tokyo Stock Exchange have reported strong performances for the April-September period, helped by government subsidies for eco-friendly cars and electronic appliances and strong exports to emerging economies. But they are likely to have a difficult time in the next half-year period, because of the threat of prolonged deflation and a rise in the value of the yen.

According to Nikko Cordial Securities Inc., 1,167 firms on the first section, excluding financial firms, registered a total current account profit of ¥13.889,6 trillion in the first half of fiscal 2010, some 2.4 times more than a year before and close to the ¥14.502 trillion registered in the first half of fiscal 2008, just before the collapse of Lehman Brothers Holdings Inc. The total sales grew 10.7 percent from a year before to ¥239.283,2 trillion.

The firms are cautious about their performance in the October 2010-March 2011 period. They expect total current account profit to grow 44.6 percent from a year before to ¥23.140,9 trillion, with the growth rate lower than in the previous half-year period. That amount would be about 70 percent of the current account profit posted for the October 2007-March 2008 period — more than a half year before the global recession triggered by Lehman Brothers' collapse.

The termination of government stimulus measures will affect business performance. Subsidies for eco-friendly cars ended Sept. 7 and the eco-point system for electronic appliances will be scaled down this month. Auto sales in October declined 37.4 percent from September. Sales by electronic makers will also suffer.

Many firms are trying to overcome the effect of a strong yen by expanding overseas production. This could lead to hollowing of domestic industries. The government should pay attention to the fact that firms are expanding business activities abroad not only to cope with a strong yen but also due to their distrust of the government's economic policies. The government needs to develop policies that will make Japan's markets and business environment attractive to both Japanese and foreign firms.



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