From Go-Go to Go-Slow

Japan prepares for a new era of diminished expectations

After a long, dark stretch of lagging growth and raging prices, the fabled Japanese economy is at last on the road to recovery. Production, discounted for inflation, rose 2.4% in the first quarter, or at an annual rate of 9.8%. That pace is expected to slow considerably later in the year. Still, Prime Minister Takeo Fukuda now insists that the government's ambitious 7% growth goal for this year "appears within reach." At the same time, the rate of inflation has fallen from a 1974 high of 21% to a manageable 4%. Yet simultaneously, there is a slowly dawning consensus among Japanese leaders and businessmen that the good old days of whizbang, export-led growth are numbered. Indeed, go-for-broke Japan is now retrenching for a new era of go-slow growth, in which gross national product is expected to expand at about half of its former clip of 10% to 12%.

A prime reason for Japan's diminishing expectations is the increasing annoyance of the U.S. and Europe with the country's policy of saturating world markets with its goods, while tightly controlling access to its home market--the third largest after the U.S. and the Soviet Union. The result: Japan piled up a trade surplus of $17.3 billion last year, $8.1 billion of it with the U.S. alone.

Fearing a protectionist backlash, and pressured by the U.S., the Japanese government in April issued an "administrative guidance" calling on producers of steel, TVs, autos, watches and cameras to try to hold exports to or below 1977 levels. So far, the plan has not been working. Exports to the American market alone jumped by 35% in May. Japan's Economic Planning Agency conceded that the nation will ship out $23 billion more in goods than it will bring in this year, and in the process pile up a whopping $9.5 billion surplus with the U.S.

As a small step toward increasing its imports, Japan has recently lowered tariffs on some 124 items, worth about $2 billion. But about a third of the reduction was on shrimp, which the U.S. does not ship to Japan. Tariff cuts on other items were also slight; the duty on computers was dropped from 13.5% to 10.5%, on color film from 16% to 11% and on tires from 10% to 8%.

Most infuriating for foreign sellers are Japan's myriad nontariff, nonquota trade barriers, many of which remain firmly in place. One of the most effective hurdles is Japan's all but impenetrable, multi-layered distribution system, largely controlled by the giant trading houses. After the many middlemen take their cuts, the price of a U.S.-made refrigerator passing through the distribution network can cost the consumer up to $1,000. Government "testing" of imported autos has also been a sore point for U.S. and European carmakers, mainly because Japanese standards are often set capriciously. Says U.S. Trade Representative Alan Wolf: "As soon as we solve one of these standards problems, another one comes up."

As the U.S. has long argued, the surest way for Japan to reduce its trade surplus is to step up the expansion of its domestic economy. That would increase demand for imports as well as for domestic goods that might otherwise be exported. To this end, Prime Minister Fukuda has pledged his government to a huge deficit-spending program, which includes $22 billion for improving Japan's long neglected highways, bridges and pollution controls. Another $10.5 billion is being spent for 550,000 sorely needed new housing units. As a consequence, consumer spending is reviving, the once mountainous backlog of inventories is fast being depleted, and the stage is set for a reasonably strong recovery.

But not too strong, agree the government, business and even labor. The developing feeling in Japan that the economy must be restructured to grow more slowly is based on other factors besides the fear that a huge trade surplus would ultimately raise high the walls of protectionism abroad. The increasing value of the yen automatically increases the prices of Japanese goods overseas, inevitably hurting an economy based so heavily on trade. In addition, Japan's shipbuilding yards and textile mills are meeting tough competition from spanking new facilities in lowpaying, less developed nations such as Brazil and South Korea. Small-and medium-size general merchandise producers of toys, hardware and household goods are losing markets to rivals in Taiwan and Hong Kong. Profits are meager for many companies, and 18,000 firms went bankrupt last year.

Many key industries are now hunkering down for a long period of only modest growth. Toyota Motor Co., which expects to sell 550,000 vehicles in the U.S. this year, vs. 561,000 in 1977, recently announced a scenario for the future that includes plans for eventually reducing its present capacity by 30%. Some firms, like the Tokyo Juki Co., a medium-size machinery maker, have put a freeze on wage boosts.

Even so, American policymakers are under no illusion that Japan will be able to transform its system drastically at any time soon. Says Wolf: "In ten years, there may be a substantial change in the Japanese role in the world. But whether we will make it through that far without a good deal more irritation on both sides remains to be seen."

This file is automatically generated by a robot program, so viewer discretion is required.