Despite its recession, Japan still formidable

March 31, 1993|By John E. Woodruff | John E. Woodruff,Tokyo Bureau

TOKYO -- Americans and Europeans already reeling from two decades of Japanese competition should not take too much heart from this country's worst recession since World War II.

As the world's No. 2 economy enters an unaccustomed third year of slowdown, analysts here warn against expecting much good news for Japan's competitors.

These analysts disagree about when and how recovery will arrive here. Some expect it by fall. Others warn that the worst might not yet be over. "A double-dip recession is a real danger," warns Ryo Watabe, of the Nomura Research Institute.

"From now on, Japanese companies will face problems more like the ones their European and American competitors are familiar with," says one Western embassy economist.

But most analysts are concluding that even a recession-battered Japan will remain a formidable force among the industrialized world's prime trading competitors for the foreseeable future.

"This time, they may not come out of recession even tougher than they went in, as they have in the past," the economist says. "But they will still be resourceful and skilled managers, they will still have the best-organized exporting and engineering forces, and they will still be backed by the best-educated, most disciplined workers and one of the best-financed economies in the world. They won't go away just because their economy is maturing."

So far this year, the news out of Japan has been dominated by unprecedented shocks to this country's most prized assumptions about its economy: The first auto assembly plant closing, corporate attempts to drive inefficient managers into early retirement, companies reneging on jobs they promised to new college graduates.

But amid consumer and corporate gloom, these analysts' views are underpinned by telling signs of long-term strength:

* The yen continues to appreciate against the dollar at roughly the same 5 or 10 percent a year that has prevailed for the past two decades.

* Alone among its chief trading partners, Japan has a balanced government budget. Even a record pump-priming package now being drafted is expected to do little to change that.

* Despite weak economies in its prime overseas markets, Japan piled up a record-breaking $130 billion trade surplus in 1992.

* Consumer prices are rising at barely 1.6 percent a year despite interest rates that match postwar lows. And there is no sign that the immense real estate and stock market inflation of the bubble years is about to reignite.

"Fundamental conditions for resumed growth are being maintained and consolidated," says Yukio Noguchi, a Hitotsubashi University economist. "We can expect the Japanese economy to move on to new growth."

For European and American executives who compete with Japanese firms for market share, this analysis contains only a few tidbits of comfort.

One is that no one foresees the kind of roaring economic recovery that would bring back the easy money Japanese companies could get in the late 1980s.

Quite the contrary: Japanese corporations will soon be paying vastly more just to service huge debts they took on in the bubble years. They will have to roll over more than $100 billion in convertible bonds and warrants at much higher rates in the next 20 months, because stock prices are low and holders of these securities will not be tempted to convert them to equities.

And a revisionist view is emerging to challenge the wisdom of the hundreds of billions of dollars in new plant and equipment investments that made Japanese companies seem invincible not too long ago.

"Japan front-loaded much of its 1990s growth into the late 1980s and didn't necessarily grow wisely," says Andrew McGrath, a senior analyst for Credit Suisse Japan.

Today, that investment binge deepens and prolongs the recession, because overcapacity tempts managers to go on producing faster than recession-frightened consumers and companies are willing to buy, he says.

But Japanese corporations have a record of rising to challenges, from oil-price "shocks" in the 1970s to drastic surges in the yen's value in the mid-1980s.

"Of course they have to adjust to some difficult realities," the Western embassy economist says. "They'll have to deal with much slower growth, and with business cycle recessions like this one -- the things that go with a mature economy."

Some of the adjustments will not be easy.

"At some point when Japan finally emerges from the current recession, a true picture of the country's sustainable growth rate will emerge," says Credit Suisse's Mr. McGrath. "This rate is probably much closer to 3 percent than 5."

In previous years, he added, "corporate Japan has never performed well when domestic growth has held below 3 percent."

But most analysts expect corporate Japan to adjust successfully.

Baltimore Sun Articles
|
|
|
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.