TOKYO (MNI) – Fewer firms reported in June that it was easier to
issue commercial paper than three months earlier while more firms said
it was “not so severe” to use this short-term funding tool, a followup
poll to the Bank of Japan’s quarterly Tankan survey released on Monday
showed.

This indicates that corporate funding, at least for firms that are
large enough to be able to issue debt, might have already recovered to a
“normal” level from the difficult times over a year ago and that there
was limited room for further improvement.

The diffusion index showing the current CP issuing conditions among
major firms that have issued short-term debt at least once in the past
two years fell to 29 in June from a record high of 32 in March, posting
the first drop in six quarters. But the June reading was still the
second highest on record.

The percentage of respondents saying CP issuance was “easy” dipped
to 32% of 194 sample firms surveyed in June from 35% of 200 firms polled
in March while that for those saying “not so severe” rose to 65% from
62%. The ratio of firms reporting “severe” conditions remained low at
3%.

In the diffusion index, March’s 32 was the highest level since
March 2008, when the BOJ began compiling CP issuance data to see a
clearer trend among those that were actually issuing debt as part of the
overall Tankan survey.

The index has already recovered sharply from a record low of -55
posted in December 2008, when market functions were paralyzed by the
global financial crisis following the failure of Lehman Brothers.

Last week, the latest Tankan results showed that business
confidence among large Japanese manufacturers improved in June for the
fifth consecutive quarter to its highest level in two years, as Japan’s
exports and production continued to rise on the recovering global
economy.

The Tankan headline index — showing current business sentiment
among large manufacturers — improved to +1 in June from -14 in March.
The June reading was the highest since June 2008 (+5) — before the
global financial crisis — and also the first positive reading since
then.

The Tankan also showed that the diffusion index for CP issuance —
the percentage of all firms polled (regardless of whether they had
issued short-term debt) saying the environment for issuing CP is easy
minus the percentage of those saying it is difficult — rose to -4 in
June from -6, improving for the fifth quarter in a row.

Meanwhile, companies in general appear to have necessary cash for
their daily operations and thus their demand for raising funds via CP
issuance may not be so strong.

The June Tankan showed that the ratio of liquidity — assets (cash,
deposits and securities) divided by sales — at major firms improved to
1.21 at the end of March 2010 (the latest period available) from 1.08 at
the end of December 2009.

The ratio of liquidity at smaller firms at end-March stood at 2.07,
also up from 2.04 three months earlier.

Those figures indicate that companies have sufficient funds on hand
as they remain reluctant to make large-scale capital investment.

Effective the March 2010 Tankan, the BOJ began releasing a separate
piece of data on conditions for CP issuance by companies that have
actually used this short-term funding tool in recent years. It is
released two business days after the Tankan comes out.

In the Tankan, the BOJ asks all reporting firms to answer the
conditions for CP issuance, regardless of whether they have actually
issued CP in the past.

tokyo@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4833 **

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