Japan Offers Help to Companies Hit by Thai Floods

By Leika Kihara & Yoko Kubota | October 25, 2011

Japan has offered extra loans, insurance and a baht cash line to help Japanese companies in flood-ravaged Thailand, signaling growing concerns over the disaster’s impact on the world’s third biggest economy.

Thai officials have said it could take as long as six weeks for water to recede after the nation’s worst flooding in half a century and a further 45 days for industrial parks to reopen, and the prospect of a prolonged production paralysis is raising alarm in Tokyo.

“Thailand is the center of Japan’s supply chain, especially in the ASEAN region,” Economics Minister Motohisa Furukawa told reporters, referring to Southeast Asia’s economic and political bloc. “We need to keep in mind the impact on Japanese firms and closely watch the impact on the Japanese economy.”

The Bank of Japan said it was discussing a scheme with its Thai counterpart that would allow Thai central bank to lend baht funds using Japanese government bonds as collateral.

In addition, the trade ministry said government-owned Japan Finance Corporation would offer loans to Japanese parent companies of firms operating in Thailand, while Japan’s export credit agency would reinsure insurers providing cover to Japanese firms affected by the floods.

About 1,800 Japanese manufacturers operate in Thailand and several of them, including Toyota Motor Corp, Canon Inc, Pioneer and Sony Corp, have suffered flood damage to plants or supply snags.

Canon, the world’s biggest maker of digital cameras, cut its annual profit forecast below market expectations on Tuesday, citing damage to its camera parts suppliers in Thailand and a closure of an inkjet printer plant there.

On Monday, Toyota said it would trim production at its Japanese vehicle assembly factories this week due to a shortage of Thai-made parts as the floods disrupted supply.

A senior Bank of Japan official briefing reporters on the plan said so far Japanese banks and companies were not facing funding strains in Thailand, but that the central bank was closely monitoring conditions there.

Thailand’s central bank has said the floods could shave more than one percentage point off this year’s economic growth. No official estimates are available for Japan, but the floods are seen denting production in the months ahead, right when it has largely recovered from a slump caused by the devastating March earthquake and tsunami.

CRITICAL TIME
“The impact is large enough to push down Japan’s industrial production by 1 percentage point for the next two to three months. Once the floods recede, production will bounce back,” said Hiroaki Muto, senior economist at Sumitomo Mitsui Asset Management Co in Tokyo.

About 450 Japanese businesses are located in the seven flood-hit industrial parks and some others are dependent on items produced there, a trade ministry official said.

Japan’s manufacturers have largely successfully restored production and supply networks damaged by the March 11 disaster, but now have to cope with faltering global growth, market jitters over Europe’s debt crisis and a buoyant yen.

The yen spiked to an all-time high against the dollar of 75.78 yen last Friday, and is trading well above levels that major exporters have used in their earnings forecasts.

That has fanned concerns that the currency’s strength — largely driven by nervous investors seeking highly liquid and relatively safe assets such as Japanese government bonds — will stunt Japan’s recovery from its post-quake slump.

The BOJ is expected to trim its growth forecasts for this and next fiscal year when it meets on Thursday, but still predict a gradual moderate recovery and keep its policy on hold.

Finance Minister Jun Azumi repeated that he was ready to take firm steps — seen as a coded reference to market intervention — if the yen’s gains become excessive.

The baht funding line would add to an array of measures the Japanese government has proposed in recent weeks to help the nation’s exporters cope with the yen’s impact, including subsidies for companies that plan to expand domestic production rather than move it abroad.

 

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