Abstract

The Japanese corporate sector, the vitality of which appeared indisputable a decade ago, is currently under great stress. Since 1990, the performance of the Japanese corporate sector has lagged that of its counterparts in several large industrial countries. As a result, while a number of large export-oriented companies continue to be strong, concern has grown about the overall health of Japan’s corporate sector. A perception has emerged that the average Japanese firm is highly leveraged and in a fragile situation, and that large corporations cannot expect their considerable accumulated wealth to substitute permanently for strong rates of return from core businesses. Indeed, in the absence of genuine restructuring, the gradual depletion of these resources and poor prospects of profits had until recently led to a persistent decline in Japanese equity prices. These factors also contributed to the lowering of the credit ratings of many top Japanese corporations, including several major trading companies.