Japan's Electronics On the Blink

There's a lot more wrong with Japan's economy than its banks: Toshiba and Hitachi, two of the electronic giants that drove the country's postwar industrial boom, on Monday posted massive losses. Toshiba's $53.6 million pretax loss in the first half of fiscal '98 compared with a $212 million profit for the same period last year; Hitachi lost $1.04 billion compared with a $204 million profit in the equivalent period last year. "These companies will bleed as long as demand at home and in Asia remains weak," says TIME senior business reporter Bernard Baumohl. And therein lies Japan's vicious cycle: The bursting of the country's banking and real estate bubble created a credit crunch throughout Asia, and the consequent financial turmoil shrank markets for Japanese products -- eating into the manufacturing sector that turned Japan into an economic superpower. The country's Nikkei stock index has been sliding all week due to the earnings reports and general jitters, and it dropped 2.2% more on Wednesday.

Not even banking reform can ease the pain at this point: "Even if Japan succeeds in revitalizing its banking system, it would take at least three years for the Japanese economy to restore the growth levels of the 1980s," says Baumohl. So when that Hitachi sound system gets cheaper at your local store, it's playing a depression tune.