Japan's miracle succumbing to reality

November 30, 1993|By Thomas Easton | Thomas Easton,Tokyo Bureau

TOKYO -- A continuing collapse in the Japanese stock market has raised the prospect that Western reality has finally taken hold of the Japanese economic miracle.

After years of strong growth, Japan is suffering through its most painful recession since World War II, and with the protracted economic decline, the ebullient confidence that supported share prices on lofty clouds of expectations seems to have collapsed.

The benchmark Nikkei Index of 225 stocks has declined 24 percent since August and was hammered yesterday during its worst session of the year, although stocks regained some ground today. Yet by the measures used to assess stocks in the United States such as price-earnings ratios, it could still fall another 50 percent, returning to levels not seen since the early 1980s.

"The point is, the roof over prices is collapsing," said Paul Summerville, head of Asia research for Lehman Brothers. "It is happening with furniture, it is happening with haircuts, it is happening with tempura, it is happening with ridiculously expensive bottles of wine, and it is happening with stock prices. Japan isn't different anymore."

Traders at one of the largest Japanese financial firms cited widespread concerns that the Nikkei, now at 16,406.54, could fall below 13,000. Valuing shares in Japan using the same yardsticks as common in the United States would push the Nikkei down to about 8,000, Mr. Summerville said. At its 1989 peak, the Nikkei stood at almost 39,000.

This afternoon, stocks rebounded after Finance Minister Hirohisa Fujii suggested the government might take measures aimed at stimulating economic growth, Bloomberg Business News reported. Earlier in the day, Mr. Fujii had indicated that he opposed government interference in the stock market and said that economic stimuli could achieve only limited results. His early comments sent share prices plummeting, and the finance minister held a second press conference to "clarify" his remarks, Bloomberg reported.

The Nikkei 225 average closed this afternoon up 327.83 points, or 2.04 percent.

The wavering share prices come as Japan is responding to a deepening recession with groping steps to change its philosophy of governance. Many of Japan's powerful ministries, including those supervising finance, industry, transportation and construction, are proposing wide-ranging plans for deregulation that would, to a far greater extent than the Japanese have been willing to tolerate in the past, leave markets to market forces.

The scope of the deregulation covers thousands of items, stretching from which firms can deliver packages to what company can bid on a building project to how much can be charged for an overnight train ticket.

Against a background of tremendous skepticism about whether this change can actually happen, a consensus seems to be emerging: The myriad regulations controlling economic activity in Japan that served it well in the past are choking off growth and critical innovation. The new attitude has particular relevance for the numerous formal and informal rules that have protected domestic companies from imports, creating a lucrative safe harbor for Japanese industry.

Once an area with broad support from both the public and business, today these restrictions are often criticized for enlarging Japan's huge trade surplus. That, in turn, has inflated the value of the yen and undermined the cost-competitiveness of the industries these rules were originally intended to protect. Almost as important, the barriers have significantly increased domestic prices and consequently minimized the lifestyles that Japanese consumers should, as part of a rich nation, be able to enjoy.

Efforts at deregulation have received widespread vocal support, but the recent convulsions in the financial markets suggest that the prospect of a government that cannot prop up share prices directly through intervention, or indirectly by providing economic cocoons for domestic companies, has undermined investor confidence.

"What has begun in the past week is the unraveling of the postwar Japanese economy," Mr. Summerville said.

As has become commonplace in recent months, the decline in stock prices was accompanied by reports illustrating the economic malaise.

The Japan Automobile Manufacturers Association said yesterday that Japan's automobile exports plunged 25 percent in October, the biggest monthly decline since World War II. Association official Ta--i Kotake attributed the decline to a slump in foreign demand and to the rapid appreciation of the yen.

Figures on industrial production showed a decline for a record eight months running, with the steepest slowdown registered by the steel, chemicals and transport machinery sectors.

A Labor Ministry survey indicated a surge in the number of companies curtailing employment during the past quarter through cutting back on overtime, transferring personnel or reducing recruitment. Cutbacks were most widespread in manufacturing, the heart of the Japanese economy, with 46 percent of those surveyed responding that they had instituted "employment adjustments" during the July-September quarter.

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