Recession, Japanese-Style

• Share

For months the Japanese searched fitfully for the right word to describe what was happening. At the Bank of Japan, the nation's central bank, officials spoke of "an adjustment phase." Prime Minister Kiichi Miyazawa admitted only to "a difficult situation." The Economic Planning Agency, the government's record keeper, referred delicately to a "retreat." Then two weeks ago, for the first time since 1987, the agency dropped its boilerplate reference to the "expansion" from its closely watched Monthly Economic Report, and the word game was over. Japan's economy, the world's second largest, conceded the experts, was in recession.

That admission confirmed the bad news businessmen had been reading in their spreadsheets for several months. "In 1991 one market after another turned bad," says Yoshihiko Wakumoto, senior vice president of Toshiba Corp., which now admits that its pretax profits for fiscal 1991, ending March 31, may be down a whopping 42%. In April, when many Japanese companies announce their results for 1991 fiscal year, most will report declining profits. Blue chips like Sony, NEC and Matsushita have all experienced drops of over 40% in pretax profits. Japan's security houses, hit by declining commissions from a falling stock market, will announce even more dramatic drops. Nomura Securities, once Japan's most profitable company, is talking about an 80% decline in profits. Auto manufacturers, banks, airlines, steel companies, department stores -- all are in a slump.

Technically, what is happening to the Japanese economy does not meet American criteria for a recession, normally defined as at least two consecutive quarters of negative growth. While economic growth has slowed in Japan, it has not ceased. Government economists are predicting a 3.5% increase in GNP for 1992. Outside experts are not so sanguine. But nearly everyone agrees that GNP growth in Japan is unlikely to slip into negative numbers, as it did last year in the U.S. and Britain. "There's no question that we are in a recession," pronounces Kunio Miyamoto, chief economist of the Sumitomo-Life Research Institute. "But it is a recession, Japanese-style."

That's a recession with full employment and declining, though still positive, growth, which many Japanese are hoping will run its course in a relatively short time. But a number of economists and businessmen don't think this one will be that simple. The current "recession," it is feared, may mark the beginning of a fundamental shift in the Japanese economy.

During the last half of the 1980s, Japanese companies based much of their expansion around the world on the wildly inflated values of the Tokyo Stock Exchange and Japan's frenzied real estate market. Now both those markets have collapsed. And with long-term interest rates up from 5% to 7%, Japanese companies are less able to sell vast quantities of high-quality goods at razor-thin profit margins. Added to this are pressures from shareholders for a greater return on investments, from Japan's trading partners for restraints on its aggressive trade practices, and from its own citizens for a reduction in their working hours so they can enjoy the fruits of 40 years of relentless toil.