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Bank Merger on Hold in Japan - 2004-07-30

The merger that would create the world's largest bank is on hold and Japan's industrial production has fallen while commercial sales rise amid the country's economic recovery.

Japanese bank U.F.J. says it is eager to settle its legal dispute with a rival so it can go ahead and merge with Japan's largest banking group.

The merger between U.F.J. and Mitsubishi Tokyo Financial Group is on hold because of a court injunction. Sumitomo Trust Bank contends the merger should be stopped because U.F.J. had agreed to sell it the U.F.J. Trust Bank. A Japanese judge has called that agreement "legally binding."

U.F.J. Holdings President Ryosuke Tamakoshi says the merger with Mitsubishi Tokyo is out of the question without the trust bank.

Financial Services Minister Heizo Takenaka has been seen as supporting the merger after he ordered U.F.J. to improve compliance with banking regulations. Regarding the merger setback, Mr. Takenaka says because the injunction involves a dispute between individual banks, he cannot take a stance.

Japan's industrial production fell a seasonally adjusted 1.3 percent in June from the previous month. That is the first decline in four months. The drop is blamed on a fall in the machinery sector. But Japan's Trade Ministry says it still believes industrial production remains on a gradual recovery trend and predicts a rise for July and August.

Commercial sales in Japan rose 2.8 percent in June from a year earlier, reversing a two percent fall seen in May. Commercial sales - at the wholesale and retail levels combined -totaled $400 billion. However, retail sales alone fell nearly three percent.

Honda says its group revenue and profit hit record highs thanks to robust sales of vehicles and power products in Japan and overseas. For the April through June period, Japan's number three automaker reports its net profit rose more than 12 percent year-on-year.

Meanwhile, Sony has posted a 41 percent drop in its operating profit for the April-through-June period. The consumer entertainment giant blames sluggish sales in its electronics and video game businesses.

Profit in Sony's main electronics operation were cut in half to due to falling sales prices and a 130 percent jump in expenses related to the company's structural reforms.