Growth in Japanese bank lending slowed to a seven-month low in May as firms stop hoarding cash and it becomes easier to obtain funds via capital markets, but the slowdown also points to a worrying drop in funding demand.
Companies need less money because they are reducing capital spending on the view that global demand will not soon return to levels seen before the economic crisis, boding ill for the economy in the near term.
The balance of outstanding loans held by Japanese banks rose 3.1 per cent in May from a year earlier, the smallest increase since October, after climbing a record 3.6 per cent in December and January.
The tightness in Japanese financial markets has eased to levels seen before the collapse of US investment bank Lehman Brothers in September that rocked markets worldwide.
"The initial reaction to the crisis seems to be over. But companies' sales may not return to levels seen before the Lehman shock," said Yoshimasa Maruyama, an economist at trading house Itochu.
Corporate bond issuance has also come back to life in recent months, with 693 billion yen of such bonds issued last week alone.
That rise means companies can rely less on short-term commercial paper, of which the outstanding balance in Japan fell 19.1 percent in May from a year earlier.
Until a few months ago, commercial paper issuance had been falling for a different reason, as investors did not want to buy for fear of any sudden corporate bankruptcies, analysts say.
To support these markets, the BOJ pledged to buy up to 3 trillion yen ($31 billion) of commercial paper and the government promised to guarantee loans for small firms as part of a stimulus package.
Some analysts now say the need for such support measures may be waning, as a Bank of Japan commercial paper-buying operation on Friday drew no bids from banks.
The number of Japanese companies going bankrupt fell from the same month a year earlier in May for the first time in 12 months, a research firm said on Monday, in another sign that Japan's economic downturn may be bottoming out.
Sentiment among service sector workers such as taxi drivers, hotel staff and restaurant employees - called "economy watchers" for their proximity to consumer and retail trends - also rose to a one-year high in May.
The Nikkei share average rose to an eight-month high after better-than-expected US job figures raised hopes for a recovery.
Reuters