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JAPAN: ECHOES OF WORLD WAR II : National Agenda : Economic Miracle Goes 'Poof ' but Firms Adapt : Trade surpluses and a rising yen keep Japan a powerhouse despite the troubled real estate and stock markets.


TOKYO — Toshimi Yoshida's grimy factory, with its worn concrete floor and sexy pinup calendars on the walls, is the kind of place that created Japan's post-World War II economic miracle.

A former seaweed-drying shed turned metal workshop, the tiny facility churned out auto parts that fueled Japan's powerful export drive. The high-quality, low-wage work of Yoshida and his five employees eventually helped humble mighty Detroit.

But now an ever-strengthening yen and Japanese investments in low-cost production overseas are bringing hard times to the small factories at the base of Japan's industrial pyramid. With the country in its fourth year of near-zero economic growth, people like Yoshida, 50, are bearing the brunt of a painful adjustment.

"If the yen gets any stronger, I'm worried that we can't survive," Yoshida said of the currency that's pricing Japanese products out of overseas markets.

Yet for all the discomfort and fear, Yoshida, like Japan itself, is coping. Convinced that his auto parts work will be gone within five years, he is turning toward new fields. He uses his connections to get orders for products ranging from metal clamps for construction work to protective metal covers for control panels at nuclear power stations. He then subcontracts out the jobs to other small factories.

"Looking toward the 21st Century, it's necessary to adjust one's work," he says.

Yoshida has seen lots of change already. He lost all his employees during the booming 1980s, when they quit for better-paying jobs. Two years ago, he still worked 250 hours a month making auto parts for Mitsubishi Motors Corp. Now those orders provide only 40 hours of work a month-- and his piece-rate pay, already declining, was recently cut another 3%, as part of Mitsubishi's continued squeezing of cost reductions from its supplier chain.

Fifty years after the end of World War II, the postwar miracle has ended, and it is easy to paint a picture of Japanese economic gloom. The country seems stuck in a never-ending recession. Stock prices, which crashed in 1990, remain at less than half their peak. Commercial real estate values have also plunged.

Deflation of stocks and real estate, coming after the excesses of the late-1980s "bubble economy," has left a banking system heavily burdened by bad loans, officially acknowledged to be at least $470 billion but estimated by private analysts to run as high as $1 trillion. Cleaning up the banking mess is a prerequisite to restoring Japan to full economic health.

Yet tales of woe are only half the story. The yen's 40% appreciation since 1990, while creating difficulties for Japanese exporters, has also vastly increased Japan's economic weight. With only 48% of the population of the United States, Japan's economic output measured in dollars now equals about 80% of America's.

And despite the burden of the strong yen, which makes Japanese products more expensive in dollars, the high quality, price competitiveness and, in some cases, near-monopoly market domination of Japanese exports continue to give the country huge global trade surpluses--$129 billion in 1994.

Meanwhile, ever-cheaper imports are surging into Japan, thereby trimming yen-based living costs. Total imports shot up 13.5% last year to $238 billion. Nomura Research Institute predicts that imports will reach $296 billion this year.

These imports are no longer dominated by raw materials and foodstuffs. Manufactured and semi-manufactured goods made up 55% of Japan's imports last year, up from 30% in 1984, according to the Japan External Trade Organization.

Imports of all kinds of U.S. machinery and equipment soared 23% in 1994. Key imports from the United States included computers, up 25%, integrated circuits, up 26%, and airplanes. up 16%. Imports of American foodstuffs rose 13%. Imports of integrated circuits from South Korea, meanwhile, more than doubled.

Imports of consumer goods--often made in Japanese factories overseas--are creating an outright drop in living expenses, while cheaper raw materials hold down production costs. Deflation may hurt corporate profits and weaken the financial system, but it also means Japanese living standards can rise without wages going up.

Norimichi Suzuki, president and owner of Suzuki Manufacturing Co., whose precision machine tools are used in making gears, is among those struggling to cope with the strong yen. Yet he can see benefits too.

"There's no reason for people in Japan to do the kind of work that robots can do--work that uses their hands and not their brains," Suzuki said. "Assembly-line work is surely going to move overseas. That means Japanese consumers can buy cheaper products. I think it's a good thing. Survivors in Japanese manufacturing will be those who make highly sophisticated products that require skilled labor."

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