Stricter Consumer Lending in Japan

Mayank Mehta, Chandrasekhar Atreya and Sanjay Barot
18 Jun, 2010
New York City

Stocks in Japan fell after stricter loan rules came into effect from today. The ruling party of Japan releases its election manifesto. Minutes of the meeting held by Bank of Japan on May 20 noted European markets instability.

[R]5:00 PM Tokyo, Japan – Stocks in Japan fell after stricter loan rules came into effect from today. The ruling party of Japan releases its election manifesto. Minutes of the meeting held by Bank of Japan on May 20 noted European markets instability.[/R]

Japan’s stock indexes closed lower on weak consumer lenders and banks after a stricter lending rule came into effect from today.

The Nikkei 225 Index in Tokyo closed lower 4.38 or 0.04% to 9,995.02 and of the index stock 88 increased, 118 declined and 19 remained unchanged.

The Democratic Party of Japan has in its election manifesto promised to cut the nation’s tax on businesses and nurture the environment and healthcare sector as a part of a plan to bring down deflation and also bring down the budget deficit to contain the world’s largest public debt.

“We need an appropriate response from both fiscal and monetary sides. We will try to avoid excessive yen gains and achieve economic growth that supports both domestic as well as external demand,” the document said.

The strategy envisages stimulating growth in seven areas including areas like environment, energy, health, technology and tourism.

The document said that the government will seek to double foreign direct investment and increase employment by foreign companies to 2 million from the present 750,000 by the year 2020, reducing overall unemployment rate to 3%.

Consumer finance companies in Japan are facing the prospect of huge losses as stricter loan rules come into force from today.

The law that restricts interest rate at 20% also prohibits lending to borrowers more than a third of their annual income. It also requires that lenders should register their names with credit data collecting firms like Japan Credit Information Reference Center Corp and Credit Information Center Corp, before they can issue new loans.

“The law is aimed at stopping people with little income from borrowing too much. Banks should lend more to individuals to meet funding needs, as the law takes effect,” said Deputy Financial Services Minister Kouhei Ohtsuka, at a public awareness rally today to promote the legislation.

Japanese parliament passed the consumer credit law in December of 2006, after a Supreme Court ruling that lenders were charging excessive interest rates, giving consumer finance companies time until today to adapt to the stricter rules.

Some members of the Bank of Japan had warned that Europe’s sovereign debt crisis if it escalates could pose a risk to Japan’s economy, according to the minutes of a meeting held by the bank’s board on May 20 and 21 and published in Tokyo today.

Many members said “the size of both upside and downside risks had increased somewhat” amid instability in Europe and stronger than expected expansion of some emerging market economies.

Nikkei Movers

Clarion Co Ltd led the decliners in the Nikkei 225 Stock Average with a loss of 5.4% followed by losses in Mitsui & Co Ltd of 5.2%, in Credit Saison Co., Ltd of 4.0%, in Heiwa Real Estate Co Ltd 3.9% and in NGK Insulators Ltd 3.6%.

Toto Ltd led gainers in the Nikkei 225 Stock Average with a rise of 4.5% followed by gains in Citizen Holdings Co., Ltd 3.3%, in OKUMA Corporation of 3.1% and in Sumitomo Heavy Industries Ltd 2.7% and in Softbank Corp 2.6%.

Other Movers

Daikin Industries Ltd added 2.0% to 2,960.00 yen after the air-conditioner maker was upgraded to “outperform” from “neutral” at Credit Suisse Group.

Eiken Chemical Co advanced 3.1% to 830.00 yen.

EXEDY Corporation climbed 4.5% to 2,444.00 yen after the audio speaker maker was upgraded to “overweight” from “equal- weight” at Morgan Stanley.

Leopalace21 Corp plunged 12.8% to 298.00 yen after the real estate company was downgraded to “underperform” from “neutral” at Credit Suisse Group.

NGK Insulators Ltd the maker of electrical insulators and industrial ceramic products fell 3.6% to 1,551.00.

Suncity Co surged 24.7% to 2,519.00 yen after the real estate company will likely receive about 1.8 billion yen in debt forgiveness.

Toyoda Gosei Co fell 0.4% to 2,410.00 yen.