Japanese electronics company Sharp Corp. (6753) must put together a plan to revive its fortunes before any injection of public funds can be considered, the policy chief of the main opposition Liberal Democratic Party said.
Sharp, the world’s worst performing major stock this year, is hemorrhaging cash, and Fitch Ratings last week cut its credit rating to junk status. Japan’s electronics sector is struggling to overcome a strong yen, poor demand for televisions and competition from South Korea’s Samsung Electronics. (005930)
“Sharp must have a plan to show what kind of technology it wants to build on to survive,” Akira Amari, who has served as both labor minister and trade minister, said in an interview. “They can’t just ask for public funds or assistance with rebuilding unless they can show how they will beat the competition afterwards.”
Any government bailout may follow the rescue two years ago of Japan Airlines Corp. (9201) as a precedent. Japanese electronics firms including Sony Corp. and Panasonic Corp. (6752) have reported record losses and are responding by closing factories, firing workers and cutting costs. Sharp employs about 63,700 people globally and about 31,000 in Japan.
Amari, 63, who worked at Sony before becoming a politician, said the government’s role in the electronics industry may be to encourage mergers. Part of the reason for the poor performance of Japanese companies compared with South Korea is too many competitors, he said.
“Japanese firms are using up their energy on domestic competition, which leaves them unable to make it on the international stage,” he said. “As a result, they have less funds for research and development and they don’t offer good products. If the public sector were to step in, it would in a way be a chance to reorganize the industry.”
Japan’s largest maker of liquid-crystal displays, Sharp warned on Nov. 1 it expects a record loss of 450 billion yen ($5.6 billion) in the year to March 31 and said there was uncertainty about its ability to survive. Shares fell 2.6 percent to 152 yen at the 11:30 a.m. midday break in Tokyo, bringing this year’s decline to 77 percent.
The Osaka-based company is the worst performer of 2012 among more than 1,600 stocks in the MSCI World (MXWO) Index of developed countries.
Polls show Prime Minister Yoshihiko Noda’s Democratic Party of Japan is likely to lose to the LDP in the next election, which must be held by August. A victory would return power to the party that governed for more than half a century until ousted in 2009. Japan is teetering on the brink of recession, hit by plummeting exports and a territorial dispute with China, its biggest trading partner.
Japan two months ago bought uninhabited islands also claimed by the Chinese government, prompting violent demonstrations against Japanese business in China. Amari said China should take note that such demonstrations would endanger its status as an investment destination for foreign companies.
“Companies all around the world will tend to focus their new investment on other places,” Amari said. “If China doesn’t realize that, it will slow down its own economy.” He added that the effect of the dispute on the world’s second and third largest economies was very serious and that recovery would not be a simple matter.
Nomura Securities said on Oct. 30 it expects the Japanese economy to contract an annualized 5.1 percent in the three months to September, followed by a 0.3 percent shrinkage in the next quarter. Citigroup and Credit Suisse Group AG are also among those forecasting two quarters of contraction through year-end.
Separately, Amari criticized Bank of Japan (8301) Governor Masaaki Shirakawa for not being to overcome more than a decade of deflation and suggested he be replaced when his term is up in April. The central bank should adopt a two percent inflation target, Amari said.
“The governor of the Bank of Japan is not just a bureaucrat,” he said. “He has to be in a sense like a politician. Someone whose words have a great effect on the markets. Mr Shirakawa came up from the bureaucracy.”
Amari declined to specify what kind of candidates should be considered for the role and said the government should not have the power to fire the central bank governor for failing to reach targets.
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