The corporate sector is likely to see a growing number of bankruptcies and other forms of default, according to a Standard & Poor's Corp. report released Wednesday.
The report, "Japan Credit Stats 2001," based on an annual survey of corporate credit trends in Japan, highlights a continuing weakness among companies despite efforts to improve their cost structures, the U.S. rating agency said.
"Deteriorating global economic conditions and a deflationary domestic environment point to a gloomy outlook for corporate credit quality in Japan," Daisuke Fukutomi, a director of corporate ratings at S&P in Tokyo, said in the report.
The recent failure of retailer Mycal Corp. exemplifies the increasing risk of defaults by major firms and points to uncertainty over the reliability of support from major creditor banks, according to the report.
In addition to the prolonged economic downturn in Japan, companies are feeling the effects of an economic slowdown in the United States, the report adds.
"Moreover, key manufacturing industries in Japan still suffer from excess capacity," the report says. "While a number of companies have taken progressive measures to improve their cost structure, most companies have only taken limited steps to reduce excess capacity and address the problem of high labor costs."
Fukutomi said S&P will pay particular attention to the high-tech, retail and construction sectors as areas for potential negative rating actions over the next year.