Japan Is Probably in Recession, Bank Lobby Head Says

By Finbarr Flynn and Takako Taniguchi

Sept. 24 (Bloomberg) -- Japan's economy is probably in recession, Seiji Sugiyama, chairman of the Japanese Bankers Association, said today.

Consumer sentiment has declined and capital expenditure by companies is falling as raw-material prices rise, said Sugiyama, who is also chief executive officer of Mizuho Financial Group Inc.'s main retail bank, Mizuho Bank Ltd.

``There is a high possibility that Japan's economy has entered a recession,'' he said at a regular press briefing in Tokyo.

Sugiyama's assessment matches that of Japanese business leaders in a survey released by the Japan Association of Corporate Executives this month. The economy shrank an annualized 3 percent in the three months ended June 30, the steepest contraction since 2001, the government said on Sep. 12.

U.S. financial authorities have taken a ``large step forward'' with their moves to shore up the financial system, including a $700 billion proposal to buy mortgage-backed securities from troubled banks, according to Sugiyama. It's conceivable that Japanese banks could be asked to participate in the plan, he said, adding he is unaware of any request at present.

The balance sheets of Japanese banks haven't been damaged as much as those of overseas rivals from turmoil in financial markets, and losses remain limited compared with those of foreign peers, Sugiyama said.

Katsunori Nagayasu, president of Mitsubishi UFJ Financial Group Inc.'s main banking unit, will become the next chairman of the banking lobby from April, the association said today.

To contact the reporters on this story: Finbarr Flynn in Tokyo at fflynn3@bloomberg.net; Takako Taniguchi in Tokyo at ttaniguhi4@bloomberg.net