Japan opens $16.7-billion package for small companies

The Japanese government opened a 1.5 trillion yen ($16.7 billion) sustenance package to companies threatened by the global financial crisis, in a move to ease the credit crunch, the dwindling economy from bankruptcies and in the wake of massive job cuts by companies.

The package involves Japanese state banks to buy shares in companies outside the framework of the financial sector who are affected by the economic slowdown due to slack in demand for their products and the credit crisis adding to their burden of making ends meet.

The government said, the Bank of Japan would make funds available by buying corporate debt from lenders. Japan's central bank has already started buying corporate debt to help companies raise funds, as a protection net for these firms.

Economy, trade and industry minister Toshihiro Nikai said, the government wants to support firms that are important for Japan and for regional economies regardless of their size.

The government will provide capital through Development Bank of Japan or other authorised banks by buying shares in both listed and non-listed companies, said the ministry of economy, trade and industry.

Companies must draw up plans to show profits within three years, in order to be eligible to receive funds from the banks, said Nikai

"We're not identifying any sectors. Our ministry is looking at manufacturers and companies in the service sector, but companies that are in the scheme aren't limited to the sectors that our ministry oversees."

The government had not decided on the class of shares – voting or non-voting preferred stock, it would be buy, the official said.

The scheme is to support small and medium-sized companies employing around 70 per cent of the country's workforce, who are significant suppliers to the major manufacturers constituting Japan's economy, who were finding it difficult to gather funds amid the credit crunch. This is a first package to prop up the small companies which forms the backbone to the bigger companies, who are currently cutting down production and staff.

A scheme for large companies is not ruled out, but large companies can avail of Bank of Japan's bond and purchase commercial paper.

Japanese businesses were battered by global slowing of demand for their products. Exports plummeted 35 per cent and bankruptcies surge 24 percent year-on-year in December. (See: Japan's exports plunge 35 per cent in December)

Japan is following the path that United States has adopted of bailing out sectors like the auto, in addition to the financial sector to augments cash to companies facing credit crunch.

Japan, an export driven country is taking aggressive measures to stimulate its economy and avert the country from slipping into a deep recession.

The Japanese government for the first time in seven years announced a no growth projection in the gross domestic product. (See: Japan projects no growth in 2009)

The government increased its economic stimulus plan by ¥23 trillion ($255 billion) while central bank cut interest rates to near zero after the yen soared (See: Japan hints at rate cut after yen surges)

The Bank of Japan cut its growth forecasts, as it feels that the country's economy would contract for two full years through March 2010.