Drifting With the Asian Titanic

If 1997 was “the year of China” (with its historic takeover of Hong Kong, coronation of a new leader and summit with America), 1998 should prove “the year of Japan,” for better or for worse. Probably for worse: 1998 would be a timely moment indeed for long- overdue changes from the world’s second-largest economy, but the so-called too-big-to-fail nation doesn’t look ready to make many. It could be a long year for everyone.

No one is saying it publicly, but the truth is that Japan is in danger of becoming a regional menace. Its head-in-the-sand policy of seeking to escape further recession by peddling its own goods while protecting its markets and keeping its policy mind closed raises serious ethical questions about the role of this world power in Asia.

An exasperated Lee Kuan Yew, Singapore’s senior leader, once complained to me: “I just don’t see how Japan can keep running up these huge trade surpluses against everybody.” But it looks like that’s exactly the program--and the same old one it is. Prime Minister Ryutaro Hashimoto continues to promulgate astonishing policies. Last spring his government virtually doubled the sales tax, further suppressing the inclination to spend. That threw other exporting Asian nations into renewed despair that Japan will ever emerge as the consuming savior of their cheap manufacturing industries. After all, how much will America and Europe by themselves be able to import? Only a domestically stimulated Japanese economy with markets open to imports can reinvigorate Asia’s out-of-balance regional economy.

But except for the planned “big bang” reforms designed to open domestic financial businesses to foreign investment and involvement, reform isn’t in the Japanese air; denial is. “There is absolutely no sign,” writes respected Japanese newspaper columnist Akio Ogawa in the Asahi Evening News, “that Hashimoto, the ruling party, the bureaucracy, banks and other businesses behind them might take the strong but curative medicine.” Warns a recent report from the U.S.-Japan 21st Century Committee, cochaired by former Japanese Prime Minister Kiichi Miyazawa: “The first task for Japan, which is 20 years behind the global trend toward liberalization, is to reform its economic structure and the social structure which supports it. .J.J. It must achieve a scale and speed of reform that will make up for 20 years’ delay.”

Postwar Japan, forced into a modern constitutional state by victorious American occupiers, is now the deluded prisoner of its own spectacular sell-to-others/buy-our-own formula. Despite Japan’s continued economic decline, its establishment seems determined to preserve as much of its insular system as possible. What does the world want Japan to do? “Backs to the wall,we say, the Japanese have no choice but to free their economy, deregulate their markets, privatize everything and in general get with the program we call globalization,” writes veteran correspondent Patrick Smith in the prestigious Washington Quarterly. Don’t hold your breath, though, advises this author of the provocative new book “Japan: A Reinterpretation”: “We seem to think we are watching a short, while in my view we are in for a very long movie.”

Hashimoto’s policies aren’t even working for Japan, much less its Asian neighbors. On Monday the yen plummeted to a new 5 1/2-year low against the dollar; last year the yen depreciated about 12%, and overall the Japanese stock market declined 21%. In December, reacting to all the criticism, Hashimoto proffered a relatively piddling tax cut in an ineffectual effort to compensate for the damaging April blunder. That’s not nearly enough to stimulate the kind of domestic spending and consumption that would soak up goods from places like Indonesia and Thailand, not to mention America. It’s said that Hashimoto might be dumped by his party before the mid-year elections if the economy doesn’t improve. But with whom does his party propose to replace this tough bird? And if the economy doesn’t improve and Hashimoto does stay on, you can anticipate stormy Japanese-U.S. relations. For as the U.S.-Japan trade imbalance widens even more when Japan seeks to climb out of its recession by exporting goods made cheaper by the yen’s devaluation, U.S. politicians will start bashing Japan again. That might well prompt the Japanese public to rally around Hashimoto if he predictably lashes back.

The blame game is a no-win for everyone playing it, but if Japan continues on its present course, it will have only itself to blame if it drags the region’s economy onto a continued downward slide, which would undoubtedly trigger worldwide retrenchment and recession. In a New Year’s address to his nation, the prime minister said: “I am firmly determined to stabilize the financial system, put the economy back on recovery track and regain confidence in the future of the economy.” If he manages to do all that during this “year of Japan,” I’ll be the first to nominate him as 1998 Man of the Year.

Times columnist Tom Plate is a UCLA professor. E- mail: tplate@ucla.edu