U.S. Is Getting What It Asked for in Japan
What’s really happening in Japan, focus of so much nervousness in the stock and bond markets today? The economy and society are changing--toward greater emphasis on the consumer and the individual.
And those are changes that we Americans asked for--in the sense that U.S. government policy has pushed Japan for years to open its economy and society. But now that Japan is doing just that, it’s having unanticipated consequences for the American economy.
U.S. financial markets are reflecting such consequences this week as traders question whether Japanese investors will buy their usual quota of bonds as the U.S. Treasury auctions $30 billion of securities to finance government operations. The prime concern is over Thursday’s sale of $10 billion in 30-year bonds. If Japanese investors stay home, investing in high-interest bonds of their own government, it would mean scarce American savings would have to fund the government deficit, leaving less money around for U.S. businesses, homeowners and consumers.
This week’s drama will probably have a happy ending: Government securities dealer David Jones of Aubrey G. Lanston Co. reckons Japanese investors will buy about 30% of the auctioned bonds, which is not a bad showing.
However, the real significance of this period goes beyond a single week--or year. The postwar era is ending in Japan, a 45-year stretch in which the nation of 120 million people has been characterized by hard work, intense frugality and an austere economy that emphasized exports more than domestic comforts.
Now, slowly but surely, Japan is saving less, spending more. “The savings rate declined, to 15% from 18% or 19%, but that was enough to release a rush of money into the economy,” explains Peter Rona, president of IBJ Schroder Bank & Trust, a New York based investment subsidiary of Industrial Bank of Japan. “As a result, the economy is roaring, with factories working at more than 100% of capacity--a statistical fluke--and inflation may hit 3.5%.”
That may sound low to Americans today--although U.S. inflation was only 3% when President Richard M. Nixon imposed wage and price controls in 1971. But the Bank of Japan is worried by the trend and trying to control the economy, and stem inflation’s rise, with high interest rates. And those interest rates at home give Japanese investors an alternative to buying Treasury bonds and funding the U.S. government deficit.
Moreover, the long-term outlook is that Japan will have fewer surplus savings to send to America. With the world’s second-largest economy--$3 trillion in gross national product to $5 trillion for the U.S. GNP--the Japanese people are demanding consumer comforts to match. The average dwelling in Japan--where 60% of the people own a home--is 870 square feet, smaller than the 920-square-foot average for France, or West Germany’s 1,010 square feet, not to mention the spacious 1,450-square-foot house of the United States. The purchasing power of the Japanese yen is 30% below that of the U.S. dollar or the West German mark, simply because there are fewer goods available to Japanese consumers.
But that is changing. Japan is even reaching out for imports to satisfy consumer demand, and its legendary trade surplus is declining--although imports from other countries in Asia are growing faster than those from the United States. This fuels resentment in America, yet U.S. policy for years has been to encourage Japan to buy more from South Korea and Taiwan, Hong Kong and Singapore so the U.S. economy wouldn’t have to shoulder all the burden of helping those countries develop.
What does all that lead to? To a period of transition in the world economy in which rising living standards overseas will coincide with less credit availability in the United States. It’s a simple equation: If Japan is investing and spending at home, then the $65 billion a year it has been pouring into U.S. bonds and stocks is less certain for the future.
Direct investment in U.S. business and real estate may also decline, as Japanese industry expands at home.
The U.S. credit crunch has already begun--with banks cutting back on lending, and markets shunning junk bonds and leveraged companies. It means Americans will have to work a little harder in the 1990s, while others enjoy the good life.
The Japanese, in particular, are reaching out. Their focus for this decade, writes Sheridan M. Tatsuno in a new book “Created in Japan,” is to foster creativity in science and industry by combining “the group creativity of its Confucian society with the individual creativity of the Americans.”
But what could be more positive than that? In truth, much of what is happening in Japan today is the fulfillment of postwar U.S. policy, a policy stemming from a vision of a world prosperous and at peace, in which people are free to choose and to develop their individual talents. In the current euphoria over Eastern Europe, we sometimes forget that policy has succeeded in Asia, too.
