Kumi Sato, an American-educated entrepreneur, recently asked her Japanese investment advisor whether she should buy U.S. growth stocks.
"Sato-san, I think that before the end of the year the U.S. market is going to crash," he replied. She asked why, since recent economic statistics make the moribund Japanese stock market look riskier.
"I just have that gut feeling," he replied. "It's impossible that everything can go that well in America."
Sato, president of Cosmo Public Relations Co., which represents international clients in Japan, tells the story to illustrate the perception gap between a booming--some say overbearing--America and a sickly--and in some quarters resentful--Japan.
It's a gap that explains why White House envoy Lawrence Summers faces tough going when he arrives in Tokyo today to persuade Japan it must act urgently to reform its economy. The prevailing attitude is that the country is not in any serious trouble, and that Japan hardly needs the Americans to tell it what to do.
"Everyone is very jealous and can't wait for the U.S. market to crash," she said. "Arrogance in the Americans? Absolutely. . . . Do the Japanese think that the pendulum will swing again, and they'll have their chance to be arrogant again with the Americans? Definitely."
Summers' previous statements on Japan's economy have prompted accusations of arrogance and interfering in Japanese domestic affairs. But the problems go far beyond resentment to basic differences in the way many Japanese and Americans view the current economic crisis.
While both nations are deeply concerned, American officials and opinion-makers seem, ironically, more panic-stricken over Japan's economic woes than the Japanese themselves. Many Japanese see in today's high-flying America a mirror of the "bubble" that sent their own economy soaring in the 1980s--and has now thrust it into recession.
Meanwhile, many Japanese leaders are people who emerged from the wreckage of World War II, and "their idea of economic crisis is abject poverty," said Robert Orr, vice president of the American Chamber of Commerce in Japan. "So when Americans say, 'You have an economic disaster on your hands,' they see a country flush with cash, the largest creditor in the world, and they just don't see it that way."
Japanese analysts predict that Summers, the deputy U.S. Treasury secretary, will scrupulously avoid calling publicly for the kind of drastic reforms that could cause Prime Minister Ryutaro Hashimoto's party to lose face--or votes--in the important July 12 elections for the upper house of the Diet, Japan's parliament.
But a call by Summers for permanent tax cuts or a crackdown on ailing banks--moves the Japanese government is already considering--might be welcomed, said Tetsuro Sugiura, chief economist for Fuji Research Institute.
For three decades, the United States has been pressuring Japan to open its markets, allow more foreign participation in its economy and deregulate everything from automobiles to life insurance. Gaiatsu, or foreign pressure, has become a household world in Japan but achieved notably few results.
Since the Asian economic crisis began to bite last fall, the U.S. has been preaching deregulation and fundamental structural and financial reform with renewed vigor. But the Japanese response is seen by the charitable as characteristically gradualist; critics see a government in paralysis.
Merrill Lynch economist Ronald Bevacqua argues that as long as Washington continues to place primary emphasis on the U.S.-Japan security relationship, and on keeping its troops on Japanese soil, it will never be able to muscle Japan into economic policies, such as sweeping deregulation, that are seen here as not in the Japanese interest.
"America pushes Japan to pursue economic policies that will profit the U.S. itself," complained Fumihiko Igarashi, an opposition lawmaker, although he agrees that Japan needs structural reform.
But now the Americans have a new ally: the markets. Many clearly hope--as do reform-minded Japanese--that the unseen hand of the international and domestic investors who have been giving Japanese stocks and yen a drubbing will succeed where gaiatsu failed.
For example, Moody's Investors Service released a report Wednesday citing "the inability of the Japanese government to initiate structural reforms" and warning that "the economic and financial problems of Japan have begun to resemble conditions found in other advanced industrial countries not carrying Moody's highest rating, Aaa, as Japan has carried for many years."
The implicit threat to downgrade its credit rating could cost Japan dearly--and galvanize the government to action as no amount of American nagging could.
Still, many foreign and Japanese analysts harbor grave doubts that rich, conservative, stable Japan can be forced into making drastic change--despite seven years of feeble growth, record bankruptcies and a dangerously debt-ridden banking sector.
"You aren't going to get Japanese leaders to go out and deregulate and refute the system that brought them to where they are," Orr said. "They still believe the Japanese system works. They think if they simply muddle through a little bit, they'll survive, because their economy is not the basket case the U.S. seems to think it is."
"We're comfortable," explained Fuji Research's Sugiura. "Japan has negative economic growth and this is the most serious recession since the war, but it's totally different from an American or European recession."
Unemployment, at a record 4.1%, is a huge concern. But Japan, with some $220 billion in foreign reserves and the highest savings rate in the world, is geographically and psychologically far removed from the homeless who have appeared on the streets of South Korea, from the riots that brought down the Suharto government in Indonesia, from the plunge in living standards that has thrust millions of people in Thailand back into poverty.
So while there is anxiety aplenty here, there is little sense of urgency, especially for those outside the hard-hit financial and construction industries.
"It's only the press that says it's a crisis," said business owner Sato. "The mainstream view is let's take care of our problems a step at a time."
In contrast to the anti-Americanism sparked by the trade friction of the 1980s, many Japanese now agree with America's criticisms of Japan. But that doesn't mean they're enthusiastic about what they see as a brutal, survivalist economic system, or about the "globalization" they see as "Americanization."
Though Japan's vaunted lifetime employment system is eroding, there is widespread abhorrence of "downsizing."
A senior Foreign Ministry official recently mused about the need for Japan to find a "third way" between the welfare statism of Europe and the corporate "killer capitalism" of the United States. "Japanese society has always been kinder to its losers," he said.
Thus it remains unclear to what extent Japan will embrace structural reforms that might boost productivity and profitability, satisfying international investors but undermining the communitarian values that Japanese cherish most.
"What the U.S. is saying is logical and correct, but there are other values in Japanese society," said Tsukuru Takiyama, a 40-year-old architect. "These values would be damaged by the economic logic America is urging, and that is why Japan cannot move quickly."
Researcher Makiko Inoue in The Times' Tokyo bureau contributed to this report.
* The U.S. orchestrates an international effort to stabilize the yen. A1
* Washington's action signals a more forceful role for the U.S. A1
* Asian imports to the U.S. rose about 20% in May over last year. D2
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The U.S. intervened in foreign exchange markets Wednesday in an attempt to bolster the faltering Japanese yen, the first currency intervention by American authorities since 1995. U.S. monetary officials are reluctant to take such actions in part because foreign exchange markets are so huge and can easily overwhelm whatever is done by central banks.
How the Latest Intervention worked
1. To shore up the Japanese yen, the U.S. Treasury Department asked the Federal Reserve to act as its agent to sell U.S. securities and use the proceeds to buy yen.
2. The foreign exchange trading desk of the Federal Reserve Bank of New York sold short-term bonds to raise $2 billion for the purchase of yen.
3. The Fed used the money to buy yen on foreign exchange markets.
Some Highlights of U.S. Intervention in the 1990s
* August 1992: The world's major central banks try to bolster the dollar but fail, causing the German mark and other currencies to rise in value.
* April 1994: The Fed and a number of foreign banks try to boost the dollar. The move works temporarily, but Fed officials are forced to intervene again later in the year.
* November 1994: Prompted by the dollar's decline to a post-World War II low against the yen, the Fed buys dollars. The greenback rises for a time, but slips again in February.
* August 1995: The dollar's value hits a six-month high after the central banks of U.S., Japan and Germany buy dollars. The action marks the sixth time the Fed has moved to increase the dollar's value in 1995.
Sources: Technical Data, Times staff and wire reports
Researched by JENNIFER OLDHAM / Los Angeles Times