Standard & Poor's Corp. expects Japan's poor economic fundamentals to continue undermining the new issuance of corporate bonds in the coming months.
"The 1.2 percent quarterly contraction in (Japan's) gross domestic product in the final quarter of 2001, combined with the broad-based 12 percent decline in capital spending attests to the grim fundamental reality that will also keep new issue activity at bay in coming months," the U.S. credit rating agency said in the report.
S&P said 64 new issues came to the Japanese bond market in the period from Jan. 1 to March 14, with the total issue volume at 2.4 trillion yen, or $17.7 billion.
The figure remained almost flat from the 2.1 trillion yen for those issued in the first quarter of 2001, it said.
The new issue market lost steam in the latter half of 2001, according to S&P, as investors lost their appetite for corporate bonds, following a series of failures by high-profile companies, including supermarket chain Mycal Corp.
"Corporate bond spreads rose dramatically in the aftermath of those events, discouraging even some highly rated firms from accessing the bond market," S&P said.
There is some optimism that Japanese corporate activities will show a moderate pickup in future months, partly supported by rising sentiment in the stock market, which has grown 16 percent since its most recent trough in mid-February.
But, S&P reported, "these expectations appear premature, in light of the massive challenges still facing Japan's corporations, banks and financial institutions."