By Anne D. Picker, International Economist,Econoday
Monday, April 1, 2002

Equities limped toward the holiday weekend wanting Japan's month/quarter/fiscal year to be over with at last. Somehow, the fresh start to a new quarter and especially new fiscal year seems enticing to investors. As the quarter ended, 11 of the indexes followed here were up from year-end levels while only 2 were lower. Now investors will focus for real on first quarter corporate earnings, studying them with ever increasing intensity after the Enron disaster. Investors need the long weekend to prepare themselves for the onslaught of earnings reports due in the next few weeks.

The Japanese fiscal year is over none too soon. The weight of bad loans continues to be the biggest threat to the economy. An estimated 36.8 trillion yen ($278.26 billion) in bad loans is blunting the Bank of Japan's efforts to stimulate lending. Governor Masaru Hayami reiterated the need for long promised structural reforms to be implemented to stimulate demand and he repeated his call for Prime Minister Junichiro Koizumi to inject public funds into banks to shore up their diminishing capital. Japan's property values fell at the fastest pace in nine years in 2001. Land prices fell an average 5.9 percent last year. An 11-year slide in prices means a property bought for 100 million yen ($752,000) in 1991 would now be now worth a mere fraction of the original cost. Because most bank loans are backed by land, sinking property prices could complicate and possibly derail a government plan to revive economic growth by buying the 36.8 trillion yen of bad loans held by banks. Mounting bad loans have kept banks from increasing lending for more than five years, starving the economy of cash at the same time that a 2 1/2-year slide in consumer prices has eroded corporate profits.

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