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Virtually Unnoticed : Japan--It's Now Banker to the World

First in a Series. NEXT: Competition is growing among Japan's domestic banks. In Business on Monday.

March 16, 1986|SAM JAMESON | Times Staff Writer

TOKYO — Japan has financed $100 million worth of investments by the Southern California Edison Co. through bonds issued in Tokyo. Oregon issued $720 million in bonds for the state's general revenue, with guarantees from eight Japanese banks. France and Britain will obtain $2.4 billion from Japan to help build a tunnel under the English Channel. And Japanese purchases of U.S. Treasury bonds have reached a level that affects interest rates in the United States.

These and similar developments underscore the fact that Japan, known until now as factory to the world, also has emerged, virtually unnoticed, as banker to the world.

Because it maintains the world's highest savings rates at home and the largest surpluses in trade abroad, Japan has become the world's leading supplier of new capital. And now American banks and securities firms are facing the same kind of fierce competition from the Japanese previously experienced by U.S. manufacturers.

Some American banking institutions already have been eclipsed by their Japanese rivals. No longer are American banks the world's largest. No longer are American banks' balance sheets the soundest. No longer are American banks' foreign assets the biggest.

Japan is now tops in all those categories, thanks to an unprecedented concentration of wealth in Japanese hands in the last three years.

Questions Raised

Japan's burgeoning economic power raises serious questions. Will the developing nations of the world be able to rely upon Japan for the financing that until now has largely been provided by the United States and Europe? What is Japan's plan for using these vast resources? What strategy will it adopt?

"These are all questions which demand attention," said Mark E. Buchman, executive vice president of the Union Bank, in a Los Angeles interview. "Japan's going to be calling the shots. People will be surprised by the things which will be decided by Japan."

Some experts say Japan's emergence as a financial giant has just begun.

The Industrial Bank of Japan, in a 1983 projection, said Japan was likely to accumulate $400 billion in current accounts surpluses (the sum of both trade and non-trade transactions such as shipping, insurance and tourism payments) in the eight years through 1990--the same amount the Organization of Petroleum Exporting Countries accumulated in the eight years after the 1973 oil crisis.

The actual results for the first three years, however, overshot the bank's projection by $32.6 billion, and this year's current account surplus will far exceed the projection too.

For fiscal 1986, the bank originally projected a $43.3-billion current-account surplus but now expects a $68-billion surplus. Even with the recent steep yen appreciation, which cuts into export profits, the bank still expects the current-account surplus in fiscal 1987 to amount to nearly $58 billion.

"There is no way that Japan can be left to build up that kind of surpluses, which constitute a very major global imbalance," said a World Bank official, who asked not to be identified. "Japan has become a country sucking in whatever savings the entire rest of the world has to offer in consumption. The result is that it is affecting investment decisions in other countries."

Better Bottom Line

Although the size of the United States' international balance sheet still dwarfs Japan's--$915 billion in accumulated assets versus $341 billion at the end of 1984--Japan's bottom line now tops the United States'.

At the end of 1985, Japan held an estimated $120 billion in net foreign assets, the highest in the world. By comparison, the United States went into the red by about $70 billion at the end of 1985, according to the Japan Economic Research Center.

The Nomura Research Institute predicted that Japan will hold title to $558 billion in net foreign assets in 1995 and become "the largest creditor nation in history."

The international financial system and the standard of living in the United States, which depends more and more on Japanese funds, face challenges arising from Japan's new financial power.

Although American and European banks find themselves holding most of the debts of financially troubled developing nations, it is Japan that now has most of the money. So far, however, Japan has shown no willingness to provide greater leadership, or to bear a greater burden, in tackling the problem of debtor nations.

The Industrial Bank, in its 1983 report, declared that "it goes without saying that Japan, as the world's largest capital-exporting nation, finds itself in a position in which it should fulfill an extremely large role in international finance." The bank also said Japan must assume "considerable leadership in enlarging international financial institutions."

Asked if he thought Japan was doing so, Hideo Ishihara, managing director of the Industrial Bank, said no, because Japanese don't feel rich "as people," however rich their country has become.

'Still a Poor People'

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