Japan's outlook: bad, getting worse Gloomy assessment bodes ill for exports by U.S.

recovery called months away

November 28, 1992|By John E. Woodruff | John E. Woodruff,Tokyo Bureau

TOKYO -- After months of debate on the next turn for Japan' flagging economy, a consensus began to form this month. The bears won.

Foreign and Japanese economists increasingly agreed that things are likely to get noticeably worse before they get better. And that things can't get noticeably better at least until next summer, possibly well beyond.

"The other shoe in this cycle is about to fall," Paul A. Summerville, senior economist for Jardine Fleming Securities Ltd., wrote in an article this week. "Given where Japan has come from, the fall is bound to be very hard."

Gloomy assessments like Mr.Summerville's are big-scale bad news not only for Japan but also for economies in the United States, Europe and throughout the industrialized and industrializing worlds.

Japan was just beginning to carry its own weight as an importer when its "bubble economy" of the late 1980s burst last year under the impact of plummeting asset prices and tightening credit.

The prime engine of rising imports here was the Japanese consumer, who was beginning the transition from super-saver to credit-card shopper.

Without the help of Japanese consumers, economies throughout North America, Europe and Asia will find recovery or growth harder to sustain.

"The economy remains in a severe adjustment phase," Yasushi Mieno, president of the Bank of Japan, acknowledged last week.

As Japan's chief central banker, Mr. Mieno is the man who popped the "bubble economy" by rapidly raising interest rates throughout 1989 to bring land and housing prices back to earth. Until recently, he made a career of pooh-poohing talk about serious economic troubles, though he began guiding interest rates back down more than a year ago in a fruitless attempt to perk things up.

Only a few weeks ago, the Japanese consumer was still cited in many a hopeful scenario as the savior who would pull at least Japan through the current slowdown.

"Consumers have made a sharp U-turn," Mr. Summerville wrote. "They are cutting their borrowing and are quickly returning to their old habits of saving a lot and spending a little."

A few voices remain doggedly optimistic. A few others present a turnabout eight or more months away as good news rather than bad.

"The worst is either already with us or already behind us," Toyo Gyohten, chairman of the Bank of Tokyo, told a meeting of Asian bankers in Manila, the Philippines, last week.

Then he acknowledged that he, too, thinks "mid-1993" is the soonest a real recovery can begin. Even then it will take Japan three to five more years to shake out "deep-rooted structural imbalances in its stock and property markets," he said.

Behind the gloom lie the mountains of inventory that Japan's giant manufacturing combines have only partially reduced after struggling for more than a year with stubbornly declining sales.

Despite drastic cutbacks in overtime pay and bonuses, slowed production lines have made the Japanese worker dramatically less productive. And reduced household incomes have only made consumers more cautious, piling up still more unsold cars and stereos.

Mr. Summerville estimated that unit labor costs for Japanese products have actually risen by 10 percent this year. That is the opposite of what happens as U.S. employers lay off staff and workers in a recession.

The slowdown has induced Japanese companies, once the world's most formidable investors in new plant and equipment, to repeatedly cut back their investment plans for more than a year. This month, forecasts have called for still-deeper cuts in investment next year.

Now even Japan, where "lifetime employment" is the society's favorite myth, is headed for big-scale layoffs, some economists argue.

These economists point out that it has happened before, in the recession induced by the oil shock of 1973. Japanese companies today face pressures almost identical with those that followed the oil shock, these economists argue.

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