For years, Japan`s economy has hurtled along like one of its fabled Bullet Trains, always on time and seemingly oblivious to whatever economic obstacles were placed in its path.
But today, the Japanese superexpress finds itself braking for the same barriers that are impeding the U.S. economy and have raised fears of a debilitating recession from sea to shining sea: rising interest rates, higher oil prices and plunging stock values.
And while the 123 million Japanese who have ridden the Rising Sun Limited to new and unprecedented economic prosperity don`t like it, the scenery outside is definitely slowing down.
Consider the following signals that appear to be sidetracking the once barreling Japanese economy:
– A survey this month by Japan`s Nihon Keizai Shimbun, the leading economic journal in Japan, revealed that Japan`s 1,038 major corporations are expected to report a substantial decrease in profits for the fiscal year ending March 31-the first time that has happened in a decade. According to business results released by the firms, profits will fall 2.6 percent to $65.8 billion on sales of $2.23 trillion.
– Japan`s seasonally adjusted current account surplus, which includes the merchandise trade surplus plus capital flows, was only $1.77 billion in July but gained a bit in recent months and stood at $2.52 in October. It could become a deficit by January, some analysts believe. The last such deficit Japan registered occurred in 1980.
Imports increased from year-earlier levels for the seventh consecutive month in October, driven up by a 75.2 percent rise on year in crude oil and mining imports, as well as by a 30.2 percent rise on year in machinery imports, which includes automobiles and office equipment.
– Bankruptcies showed their first upturn in 69 months in October, according to the Tokyo Shoko Research Co. According to the survey, 646 firms went under last month-an increase of 9.7 percent from a year ago and up 21.7 percent from the previous month.
– The nation`s leading index of economic indicators, as plotted by Japan`s Economic Planning Agency, plunged below its so-called ”boom or bust” level of 50 percent to a low of 27.3 percent-a fact that led the EPA to issue a report saying it ”wasn`t optimistic” about future domestic business performance in Japan. The index is based on a list of 11 items, including retail department store sales.
Danger signs for the Japanese economy have been visible for some time. Japan`s annual growth rate has been in decline since 1988. This year Japan`s gross national product is expected to be about 5.4 percent. Next year, the EPA says it will be about 3.8 percent.
Part of that slowdown is due to a shakeout in Japan`s financial and real estate markets. For example, Tokyo`s superheated stock market has lost almost 40 percent of its value since last January. Land prices are also falling, with bloated values in cities like Tokyo and Osaka plummeting by as much as 20 percent.
At the same time, Japan`s monolithic banks, once considered invincible financial behemoths who frolicked in endless meadows of cheap capital, suddenly find themselves dangerously overexposed as the quality of loan portfolios hurt by the declining stock market and falling Japanese real estate prices come under closer scrutiny.
Eight of the world`s 10 largest banks are still Japanese, accounting for some 40 percent of all international lending. But financial experts here say that may change as Japanese banks struggle to deal with this nation`s ongoing liberalization of interest rates. That liberalization process is squeezing margins on lending, which in turn is further exposing the banks` weakening earnings base-an earnings base that had remained disguised by this nation`s traditionally tightly regulated and artificially low interest rates and by profits from soaring stock portfolios.
”The crunch has definitely come to Japan,” said Hong Kong banker William Cheung. ”For a long time, bank lending in Japan was predicated on the idea that there would always be an upward spiral of land and stock prices. Now, that idea has largely been discredited. Banks are scrambling to revise their thinking.”
So are many of Japan`s normally bullish business and financial industry leaders who have watched the cost of the nation`s oil imports more than double to $3.63 billion in October, pushed higher by events in the Persian Gulf.
That, combined with softening economies in key markets like the United States, Europe and Asia means Japanese firms will be exporting less.
”Everything is so interrelated,” said Tokyo Research Institute economist Tsutomo Kagohashi. ”Japanese exports to Asian nations like South Korea and Taiwan are falling because they depend so heavily on the U.S. market. And the U.S. economy is in a recession. That means demand for Japanese goods in those countries is falling because their products aren`t selling in the U.S.”
But it is not just the U.S. economy that is teetering. Japan`s EPA last Tuesday issued a gloomy report on the world economy that said a worldwide recession has already begun. It pointed out that the slowdown has been under way since 1988 when the global annual growth rate was figured at 4.1 percent. In 1989, that figure was calculated at 3 percent, and the EPA`s estimate for this year is 2 percent.
The great irony in all of this, say economists, is that a global slowdown is likely to put upward pressure on Japan`s trade surplus, which has been in decline in recent years due to Japan`s more liberalized domestic markets.
”If overseas markets for Japanese goods begin to dry up, that will add to the slowdown in Japan,” said Kagohashi. ”If that happens, then Japan`s hunger for foreign goods will weaken. Japanese firms will return to old habits and work harder to increase exports-offering rock-bottom prices. Japan`s trade surplus could start rising again. And that may lead to more trade friction with the U.S. because Japan will be sapping away consumer dollars desperately needed in America. There are no winners in this situation. We are all losers.”
