War likely to benefit Japan more than other nations WAR IN THE GULF

February 09, 1991|By John E. Woodruff | John E. Woodruff,Tokyo Bureau of The Sun

TOKYO -- As U.S. military strategists plan climactic land battles, analysts here are quietly calculating what Japan stands to gain, relative to other industrial countries, from the gulf war's impact on world economies.

They are concluding that although the Japanese economy, the world's second-largest, is being slowed by last fall's spurt in oil prices and by multibillion-dollar financial contributions to the war effort, Japan will be a long-term relative gainer because it will be hurt substantially less than most others, especially the United States.

"Almost any scenario you can see -- long war, short war, high oil, cheap oil -- does Japan either less harm or more good than it does the United States," said Minoru Takemitsu, a bank financial analyst.

"If any major economy takes less of a hit than Japan," he said, "it's probably Germany. But the Germans have their own problems -- their interest rates will be painfully high for at least another year or two because of absorbing the East. They're going to be so busy there and in the European economic unification that they won't have much attention span for anything else for a while."

Most analysts in Japan think fluctuations in oil prices, and the transfer of billions of dollars from purchasing power to help the United States pay for the war, could cost Japan a 10th to a half of a percentage point in gross national product growth, compared with what would happen if there were no war.

But even the most pessimistic of these analyses leaves Japan's economy still growing well over 3 percent for the rest of this year, a pace much of the industrialized world can only envy.

Stil, Japan is growing more slowly than in recent years, partly because of the effects of the U.S. recession but, more important, because of the tight-money policies of Japan's central bank. For nearly two years, the Bank of Japan deliberately has kept interest high and restrained the money supply to burst the bubbles of hyperinflated asset values that had grown up by 1989 in the real estate and stock markets.

Those policies were already in effect and having their effects months before Iraq's Aug. 2 invasion of Kuwait. One result has been a cooling of the phenomenal pace at which Japan's giant companies invested in new plants and equipment in the past five years. Such investment rose one point to account for more than one-fifth of gross national product. But few economists expect the moderating of big-company investment to affect Japan's competitiveness.

"I think they'll benefit from a pause after that orgy, in order to

make full use of what they've already brought on line," Mr. Takemitsu said. "And as far as the overall economy is concerned, much of the big-company investment slack is now being picked up by small and midsized companies."

The Sanwa bank pointed to the same phenomenon in its February economic letter to clients.

Medium-sized and small companies are now investing about 60 percent as much as the country's mega-corporations, the Sanwa letter pointed out.

The impetus for this investment is a need for work-saving equipment to cope with Japan's ever-tightening labor shortage,

which shows no sign of easing soon, Sanwa added.

Also stemming from the labor shortage, economists say, is a growing trend toward rising personal and family incomes -- at a rate currently projected to be faster than that for the gross national product, ending long decades in which incomes often lagged or barely matched the national production index.

The Sanwa newsletter and many other analyses hold that the expansion of incomes leaves plenty of room for domestic consumption to go on powering growth well into the second half of this decade.

For many decades, Japan's economic policies stressed exports over domestic consumption so heavily that most economists think the switch to domestic consumption as an engine of growth, though undertaken largely in response to U.S. pressure, has only begun to be felt.

Powerful Japanese government officials and corporate interests have shown a determination to see that policy continue, if only to ensure that growth continues in the face of what many Japanese analysts expect to be long-term fragility in the U.S. market. Surging domestic consumption will draw the eyes of Japanese corporate executives more toward the domestic market but also will assure a dynamic profit base to finance export operations -- and an eventual resumption of aggressive foreign investment -- most analysts say.

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