Coming Year Will Tell Depth of Japan’s Woes : Downturn: Analysts argue over whether the dismal economy is temporary or the start of a long-term decline.
By just about any measure, 1992 was a miserable year for Japan.
Stock and land prices plummeted, skittish consumers bought less, and bankruptcies soared. Some companies froze wages while contemplating the unthinkable--layoffs--to cope with falling profits. The economy actually shrank during the last three quarters of the year, according to many estimates. That would mark the first such consecutive down periods since the end of World War II.
Prime Minister Kiichi Miyazawa promised in a New Year’s address to revive the economy in 1993. This is a critical year that will show whether the Japanese economy has a bad case of indigestion after the excesses of the 1980s or whether it has caught a more serious disease that will linger for years.
Those who see Japan in a long-term decline point to the rising capital and labor costs of Japanese corporations and what appears to be a weakening technological base. According to this scenario, Japan will keep losing out to U.S. companies that exploit cutting-edge American technology and marketing savvy while taking advantage of low-cost production in Asia and Mexico. America’s dominance of the personal computer business, these pundits argue, is a harbinger of things to come.
The predominant view among Japan’s economists and ruling bureaucrats, however, is that Japan simply has a bellyache, the consequence of excess spending and consumption throughout the late 1980s. By the end of 1993, these economists argue, the Japanese economy will recover and be ready for a return to the strong growth rates of the past. The source of Japan’s continued strength, in their view, is the nation’s high savings rate, which continues to allow companies to generously fund research and investment projects.
If events in 1992 were the only basis for determining Japan’s future, its prospects would appear grim indeed.
Japanese analysts have repeatedly overestimated the strength of the economy. The Economic Planning Agency only recently revised downward its projection for economic growth in the year ending March 31 to 1.6% from its previous forecast of 3.5%. Analysts say the government is also overestimating 1993 growth with its 3.3% projection. Some private economists say they expect growth of about 2%.
Japanese companies have also misread the weakness in consumer demand. They are stuck with bloated inventories because they failed to cut back production to match demand.
“We had never experienced such a sudden drop in wealth before,” said a senior executive at Matsushita Industrial Electric, noting that land and stock price declines of more than 50% have erased trillions of dollars in asset value. “Nobody knew how to react.”
In 1992, property sales contributed $120 billion less to individual income than in 1990, noted Yoshihisa Kitai, economist at LTCB Institute of Research & Consulting, the research arm of the Long Term Credit Bank of Japan. “It is as if the government imposed a $120-billion tax.”
Many analysts also underestimated the market saturation that resulted from the consumer boom of the late 1980s, when families rushed to buy the latest in everything from camcorders to refrigerators to autos.
“It is as if everybody ate their lunch at breakfast time,” said Hideo Ishihara, president of IBJ Leasing Co., the leasing arm of the Industrial Bank of Japan. Consumers, he explained, simply weren’t hungry for products anymore.
When Sony Corp.’s company union surveyed its members on what they intended to do with their end-of-year bonuses, they got a startling response. For the first time ever, most respondents said they were going to save the money or pay off debts. In past years, spending on new cars, electronic gadgets and travel were in the plans of the majority of members.
“When employees of a company that lives off of consumption decide they aren’t going to buy, that is a serious situation,” said Akio Morita, chairman at Sony Corp. Finding new products that will drive new demand is the challenge, he said.
In a recent report, the Electronic Industries Assn. of Japan estimated that production by Japan’s electronics industry fell 10.6% in 1992 and will grow by just 1.5% in 1993. Especially hard hit were such prior successes as videocassette recorders, where production fell 23%, and camcorders, where production plunged 29%.
Japanese corporations, which used low-interest money in the late 1980s to invest in new factories and automation equipment, are now saddled with huge costs.
To adjust to the new reality, companies are searching for ways to cut costs. They are also counting on exports to keep their factories busy.
Fortunately for Japan, demand for Japanese products has been steady in Europe and Asia, and demand in the United States is picking up--suggesting that Japan’s international competitiveness is largely intact.
Japanese companies are particularly strong in the Asia-Pacific region. Economist Kitai predicts that Japan’s trade surplus with the world will reach $137 billion in the year that ends March 31 and climb to $150 billion in the following year. That compares to a surplus of $114 in 1991. “It is not as if we are dumping,” Kitai said. “People want to buy our products.”
There are also signs of light at the end of the technology tunnel. Just as some analysts have heralded the decline of Japan’s semiconductor industry, Japanese companies are experiencing a sudden surge in orders for memory chips to support a U.S. boom in personal computer sales. Japanese companies are also boosting production of liquid crystal displays used in laptop computers to keep up with growing overseas demand. Although companies such as AT&T; and Apple appear to be taking the lead in developing new portable communications and computer products, they are still turning to Japanese companies as the most reliable manufacturers of the products.
Japanese companies have continued to invest heavily in research and development, investments that will begin to pay off in such areas as biotechnology while keeping their lead in mature areas such as shipbuilding and manufacturing. Mitsubishi Electric, for example, recently announced it had developed the fastest elevator in the world.
In the short term, perhaps the biggest reason Japan’s economy may rebound by the end of 1993 is that Japan’s lower house of Parliament is scheduled for elections in the fall, and the ruling Liberal Democratic Party needs a healthy economy if it is to avoid losing seats in the elections. To get the domestic economy moving again, the government recently passed a supplementary budget for new public works projects. The budget will be financed largely from government-controlled postal savings accounts in which Japanese citizens have deposited an estimated $1.3 trillion.
Although the government’s recently passed budget for 1993 is only mildly stimulative, many expect another supplementary budget to be passed in the spring to give a further boost to the economy.
While 1992 was a “washout” and 1993 will be weak, said Kenneth Courtis, a senior economist at the Tokyo office of Deutsche Bank Capital Markets, Japan’s economy will emerge in 1994 to show “higher levels of performance than ever before.”
