Japan on the Rebound From Long Recession

During Japan’s go-go years of rapid economic growth, struggling artists used to get jobs with flush corporations whose executives were redecorating their offices. The artists’ money would thus trickle down to Hideki Takuma’s little gallery, where they rented space.

Now such lavish corporate spending is rare, and Takuma has half the clients he once had. For him and many others, Japan’s worst post-World War II recession, which began in 1990, feels never-ending.

But it has ended. And Japan’s corporations are spending bigger than ever on things--such as factories and semiconductors--that will add to the recovery. Although common wisdom remains that the U.S. economy is relatively strong and Japan’s is on the ropes, it now appears that 1996 economic growth here will surpass that of the United States.

In other words, Japan is back.

It is not a milk-and-honey recovery: For most Japanese, the recovery mirrors the recent experience of Americans. The stock market is booming, but little improvement is reflected in wages or job security. There is no return to the carefree conspicuous consumption of the late-1980s bubble years or to the extremely rapid growth rates of Japan’s postwar reconstruction and decades of playing catch-up to the West.

“People still have a dark feeling,” said Keiji Sakai, a partner in a small shoe store in a predominantly residential Tokyo neighborhood. “I don’t believe the figures they put in the paper.”

Yet some changes during the recession boosted living standards even without significant wage growth. Japan has become far more open to imported consumer goods, for instance, and ordinary people are increasingly enjoying this--partly by buying luxury items at what for Japan are bargain prices.

Meanwhile, even at Japan’s low point, in the third quarter of 1994, the nation poured more of its gross domestic product--14%--into capital investment than the United States has in several decades.

“People got used to thinking in terms that the U.S. economy had come back--competitiveness was restored, the country was lean and mean . . . and that Japan had severe structural problems,” said Ron Bevacqua, an economist at Merrill Lynch Japan.

“But even at its worst, the Japanese economy was investing more [in future productive capacity] than the United States,” Bevacqua said. “Now we’re going to get reminded. I don’t think there’s any reason for alarm. But people are going to start remembering that Japan did not sink into the ocean over the past four years.”

Money that in the past might have flowed freely into office artwork or sinecures for burned-out managers is pouring into capital investment that not only has helped pull Japan out of recession but is building future industrial strength.

In late April, electronics giant NEC Corp. announced a $1.86-billion program aimed at creating semiconductors powerful enough to reduce today’s personal computers to the size of wristwatches.

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Hitachi Ltd. said a few days later that it will spend $1.13 billion on a next-generation memory chip plant. Toyota Motor Corp. announced a 50% increase in its high school and college graduate hiring plans.

And late last month, the Tokyo stock market reached heights not seen in more than four years, when prices were plummeting with the bursting of the late-1980s speculative bubble.

“It’s a reasonable assumption to make that, during the next two years, Japan will be the star performer” among the world’s rich industrialized countries, said Russell Jones, chief economist at Lehman Bros. in Tokyo.

Tokyo-based analysts are generally predicting that Japanese growth this year will exceed U.S. growth by anything from a fraction of a percent to 1.5 percentage points or more.

A newly growing Japanese economy implies fiercer global competition but also carries benefits for the United States and the world. Japanese growth should pull in more goods, helping create U.S. jobs in export industries. Thus Japan’s recovery should help ensure that the world economy will continue to expand.

“Washington will be very pleased that Japan is coming out of recession. . . . Finally we get a synchronized [global] recovery. Hopefully, this will help unemployment rates come down around the world,” economist Jones said.

And while the average Japanese might not feel the recovery, consumers are benefiting from that new phenomenon here--imported goods at discount prices.

Top designer brands such as Chanel, Gucci, Fendi and Louis Vuitton are being sold at discount stores. New foreign-derived words such as “Chaneler” and “Guccer” have been coined to describe young women who try to dress head-to-toe in Chanel or Gucci fashions. The Nikkei Shimbun, Japan’s top financial daily, reports that for many designer brands, as much as 70% of worldwide revenues now come from sales to Japanese at home or abroad.

Meanwhile, homemakers are even beginning to buy imported foods, which are showing up both in corner grocery stores and in specialty shops. At a slightly rundown neighborhood shop specializing in inexpensive foreign items, Campbell’s soup goes for 50 cents to $1, large Hershey’s chocolate bars are $1.80 and packets of dried coconut cream powder for Thai curries, imported from Bangkok, sell for $1.90.

Until a few years ago, such items were unavailable or barely affordable.

Companies, meanwhile, have already become leaner through trimming their work forces, largely by attrition or dismissal of temporary workers. But signs are emerging that the worst of the employment crunch--which hit new graduates especially hard--is over.

“If you don’t limit yourself to top companies,” said Meiji University law major Hideya Yabashi, “there is a place to get a job somewhere.”

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Japan’s official unemployment rate--which analysts say is always understated compared with U.S. methods of calculation--dropped to 3.1% in March, down from a record high of 3.4% over the winter.

The recovery is rooted in three key factors:

* A weakening of the yen compared with the post-World War II record set in April 1995, when it hit 79.75 to the dollar. The yen closed in New York on Friday at 105.40 to the dollar and has been near that level for months. This makes Japanese exports much more competitive--and profitable.

* Heavy public works spending. A massive stimulus program launched last year has helped kick-start the economy. Japan now is in the early stage of a recovery cycle that could be self-sustaining for a number of years.

* Virtually free money. Banks can borrow money from the central bank with an interest rate as low as 0.5%. This lets them provide relatively cheap funds for corporate expansion while grabbing operating profits that have been used to write off bad loans. That, in turn, has sharply reduced fears about instability in Japan’s financial system.

The recovery also will draw strength from pent-up demand among frustrated consumers.

“The reason people are buying more isn’t that they have more money,” said Yoshiaki Takagi, a graphic designer. “It’s because they’ve endured for five years without buying things. They’ve put up with it for so long, now they just want to buy. That feeling just explodes.”

Times staff writer Hilary E. MacGregor and Megumi Shimizu of The Times’ Tokyo Bureau contributed to this report.