World financial markets have been haunted for more than a year by this question: Is the Japanese miracle a bubble waiting to burst?
The worries have been renewed after the recent climb of the Tokyo market to an all-time high on the Nikkei index above 27,000. Meanwhile, Tokyo land prices in some areas have hit $6.6 billion an acre.
Marc Faber, a managing director of Drexel Burnham Lambert Inc. in Tokyo, looks for an inevitable crash.
”Tokyo represents the greatest bubble of this century,” Faber said.
”When it breaks it will be devastating, more than people will ever believe.”
He believes it could happen soon, perhaps within a month.
The fears about Japan are partly fueled by the strength and duration of its success, particularly its swift recovery after October`s crash on Wall Street.
Skeptics also point to Japanese stocks that sell at 60 to 70 times their earnings, which is grotesquely overvalued by American standards.
Faber likens Japanese stocks to the go-go days of the ”Nifty Fifty,”
Wall Street blue chips such as Xerox and Polaroid that rose in 1971-73 to values that subsequently collapsed by more than 50 percent.
At that time, the strongest stocks continued to rise, though a serious bear market had begun in most equities-an analogy Faber draws between the Tokyo market and other major world stock markets today.
Some critics believe the Japanese market has sustained unjustifiable gains partly because the government can influence the four major securities firms to buy when they might choose to sell.
The crash fears are not expressed in Japan, however, where a recovery from October`s crash is complete and prices continue to rise.
Among analysts who do not believe a Japanese crash is imminent is John Dessauer, a former international money manager for Citicorp in Europe who writes a newsletter on world financial markets from his Orleans, Mass., home. Any impending crash in Japan, he says, is ”a hypothesis born in the minds of American pessimists” and reflects American preoccupation with the short term rather than the Japanese long-term optimism and obvious economic advantage.
”These are the people who beat the Germans in the camera industry, the Swiss in the watch industry and us in the auto industry,” Dessauer said.
”They have the world`s largest stock market. Who are we to be telling them that their outlook is wrong?”
Japanese prosperity rose when the yen was weak and the dollar strong, which was a boon to Japanese exports. But many analysts point out the opposite is true.
American consumption of Japan`s products is weakening. Japanese car prices in the U.S. have risen about 20 percent in two years, and their U.S. sales have fallen short of Japan`s export quota for the first time since 1982. According to Peter Borish, vice president of research for Tudor Investment Corp. of New York, which manages about $300 million in
institutional funds, the Japanese market is ”an accident waiting to happen.” He predicts that Japanese stocks could stumble when the dollar hits bottom against the yen.
”A lot of people have cried wolf about Japan for a long time,” he said. ”And eventually the wolf will come. But no one knows when.”
Last Friday, share prices in Tokyo fell back from record levels in the first day of trading after a three-day market holiday. The Nikkei average slipped 135.33 to close at 27,534.39.
”There is some speculation that the U.S. discount rate (a key lending rate) will go up,” said Tadaaki Uehara, deputy general manager of Wako Securities. ”And the bond market here is weaker.”
Communications, insurance, pharmaceutical, gas, retail, real estate, service, electrical, railway and bus, securities house and some manufacturing issues led the decline Friday. Only steel and credit and lease shares advanced, and their gains were slight.
”There is only today and Saturday left this week, and people are looking to begin afresh on Monday,” said a broker at a major Japanese securities house.
There was concern in Tokyo over Wall Street because three straight downward sessions erased gains earlier in the week.
This week`s second-quarter U.S. Treasury refunding and the scheduled May 17 release of March U.S. trade figures will also provide investors with key indicators of how well the Tokyo market will fare.
