Japan's Asian investment expected to recover

Japan's Asian investment expected to recover

TOKYO (Reuter): Asia's currency crisis is slowing investment in the region by Japan's powerhouse companies, but the flow of money is expected to resume when calm returns.

Until then, Japanese firms will resist the urge to shift production to countries unaffected by the currency turmoil, industry analysts said.

"Exports from Japanese companies' units in Southeast Asia will rise thanks to weaker local currencies. They will use existing facilities for now and are likely to make fresh investments after late 1998," said Shunta Yamato, a senior analyst with the Daiwa Institute of Research.

Yamato said that Southeast Asian currencies were expected to stay unstable for at least another two months. He also said Japanese investment in the region would slow down for a year or two and would resume only after steps taken by Southeast Asian governments restore currency and economic stability.

Many Southeast Asian countries have been hit by a falls in the local currency and stock market after a currency crisis in Thailand in early July, triggered by the floating of the baht, spilled over into much of the region.

The weaker currencies against the dollar has boosted the competitiveness of Southeast Asian-made products which use locally procured parts but has increased the cost of goods and materials imported into the region.

In recent decades, many Japanese firms shifted some of their production to Southeast Asian nations such as Thailand and Malaysia, initially attracted by low labor costs. And in the 1990s, the move was accelerated by the yen's rise against the dollar and the region's growth into a consumer market.

The rapid economic growth Southeast Asia previously enjoyed is likely to slacken and suffer sluggish domestic consumption for at least a year, economists said.

Toyota Motor Corp said last week it expected sales of its cars in Thailand in the year to March 31, 1998 to fall 20 percent to 30 percent short of its original target. In early August, Nissan Motor Co Ltd said it would drastically cut its August output in Thailand as slow sales have caused inventories to climb.

Analysts said that it would be difficult to estimate the size of the impact Southeast Asia's economic instability would have on Japanese firms as their operations greatly vary.

Several firms, such as electrical equipment makers Sony Corp and Sharp Corp have raised some of their products' prices in Thailand to fend off the negative impact of the fall in the local currency.

Despite the turmoil no Japanese company has not yet said it would withdraw its operation from the region.

"The local (Southeast Asian) market is slow but we are not considering changes in our operations," a Toshiba Corp [6502.T] official said.

A spokesman for Nissan said: "We think the situation in Thailand will eventually recover and we are not considering closing our plants in Thailand."

It is unlikely Japanese firms will withdraw from Southeast Asian operations due to expectations the situation will improve and because they do not want to waste the skills the workforce there has accumulated, analysts said.

Several Japanese firms recently said they would go ahead with investment plans drawn up before the turmoil broke out, believing the Southeast Asian economy will eventually recover.

Trading house Kanematsu Corp announced last week that it would build an industrial park 150 km (90 miles) north of Bangkok. Kanematsu said it believed the Thai economy would resume steady growth over the medium and long term.