Japan September Bank Lending Up 1.6% On Year

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The balance of loans issued by banks in Japan increased 1.6% in September compared to one year earlier, according to data released Tuesday by the Bank of Japan. It follows the 1.8% annual expansion in August.

Total loans in September for all banks amounted to 465.43 trillion yen. When excluding local credit union institutions or "shinkin banks", the loan total was up 1.7%, after the 1.9% gain in the preceding month. Further, lending by city banks was up 0.6%, slower than the revised 0.8% growth in the previous month.

Lending by banks has been on a declining trend as Japanese manufacturers have continued to remain cautious with regards to investment despite the upturn in industrial activity. And although machinery orders have shown signs of revival in the last few months, the subsequent trend has been one of sideways growth. The reason for this is that much of the recovery in industrial activity is being driven by temporary factors such as the inventory cycle and the various fiscal measures currently in effect at home and abroad.

With the effects of the stimulus measures fading eventually, manufacturers are more concerned about trimming down excess capacity than undertaking new investment. The latest Tankan survey showed that large companies plan to cut spending by 10.8% this year.

Nevertheless, the government has been urging banks to increase lending to smaller companies, and this is reflected by last week's revelation that corporate bankruptcies in Japan declined for the second straight month in September. Tokyo Shoko Research Ltd. said business failures slipped 17.9% in September from the previous year to 1,155 cases, while total liabilities declined to 308.77 billion yen.

The central bank also announced that Japan's M2 money supply data, which comprises savings deposits, time deposits and money market deposits, showed an increase of 3% in September from the previous year. Further, Japan's M3 money supply, which includes large time deposits, institutional money market funds and other large liquid assets, rose 2.2% year-on-year in September.

Meanwhile, Japanese Prime Minister Yukio Hatoyama said last week that it is too early to stop stimulus programs that were introduced to underpin the global recession. The comments came after holding a trilateral meeting with Chinese premier Wen Jiabao and South Korean President Lee Myung-Bak in Beijing, and follows close on the heels of the Reserve Bank of Australia's decision to hike interest rates by 25 basis points to 3.25%.

Following the Australian central bank's hawkish move, some economists were looking forward to a similar action from the Bank of Korea. However, the South Korean central bank kept interest rates on hold for the eighth consecutive month on Friday, maintaining the record low rate of 2%.

The Bank of Japan kicks off its two-day monetary policy meeting today and will announce its decision on interest rates at its conclusion. Analysts expect the central bank to keep rates on hold at the record low 0.10%, although investors will be looking for clues as to how soon the bank may raise rates.

Following the release of Japan's bank lending and money supply reports, the Japanese yen held steady against its major counterparts.

The balance of loans issued by banks in Japan increased 1.6% in September compared to one year earlier, according to data released Tuesday by the Bank of Japan. It follows the 1.8% annual expansion in August. (Market News Provided by RTTNews)