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There's Denial, Resentment on Japanese Side

Mood: Most don't think their country is in serious trouble, and they see the U.S. stance as arrogant, interfering.

June 18, 1998|SONNI EFRON | TIMES STAFF WRITER

TOKYO — Kumi Sato, an American-educated entrepreneur, recently asked her Japanese investment advisor whether she should buy U.S. growth stocks.

"Sato-san, I think that before the end of the year the U.S. market is going to crash," he replied. She asked why, since recent economic statistics make the moribund Japanese stock market look riskier.

"I just have that gut feeling," he replied. "It's impossible that everything can go that well in America."

Sato, president of Cosmo Public Relations Co., which represents international clients in Japan, tells the story to illustrate the perception gap between a booming--some say overbearing--America and a sickly--and in some quarters resentful--Japan.

It's a gap that explains why White House envoy Lawrence Summers faces tough going when he arrives in Tokyo today to persuade Japan it must act urgently to reform its economy. The prevailing attitude is that the country is not in any serious trouble, and that Japan hardly needs the Americans to tell it what to do.

"Everyone is very jealous and can't wait for the U.S. market to crash," she said. "Arrogance in the Americans? Absolutely. . . . Do the Japanese think that the pendulum will swing again, and they'll have their chance to be arrogant again with the Americans? Definitely."

Summers' previous statements on Japan's economy have prompted accusations of arrogance and interfering in Japanese domestic affairs. But the problems go far beyond resentment to basic differences in the way many Japanese and Americans view the current economic crisis.

While both nations are deeply concerned, American officials and opinion-makers seem, ironically, more panic-stricken over Japan's economic woes than the Japanese themselves. Many Japanese see in today's high-flying America a mirror of the "bubble" that sent their own economy soaring in the 1980s--and has now thrust it into recession.

Meanwhile, many Japanese leaders are people who emerged from the wreckage of World War II, and "their idea of economic crisis is abject poverty," said Robert Orr, vice president of the American Chamber of Commerce in Japan. "So when Americans say, 'You have an economic disaster on your hands,' they see a country flush with cash, the largest creditor in the world, and they just don't see it that way."

Japanese analysts predict that Summers, the deputy U.S. Treasury secretary, will scrupulously avoid calling publicly for the kind of drastic reforms that could cause Prime Minister Ryutaro Hashimoto's party to lose face--or votes--in the important July 12 elections for the upper house of the Diet, Japan's parliament.

But a call by Summers for permanent tax cuts or a crackdown on ailing banks--moves the Japanese government is already considering--might be welcomed, said Tetsuro Sugiura, chief economist for Fuji Research Institute.

For three decades, the United States has been pressuring Japan to open its markets, allow more foreign participation in its economy and deregulate everything from automobiles to life insurance. Gaiatsu, or foreign pressure, has become a household world in Japan but achieved notably few results.

Since the Asian economic crisis began to bite last fall, the U.S. has been preaching deregulation and fundamental structural and financial reform with renewed vigor. But the Japanese response is seen by the charitable as characteristically gradualist; critics see a government in paralysis.

Merrill Lynch economist Ronald Bevacqua argues that as long as Washington continues to place primary emphasis on the U.S.-Japan security relationship, and on keeping its troops on Japanese soil, it will never be able to muscle Japan into economic policies, such as sweeping deregulation, that are seen here as not in the Japanese interest.

"America pushes Japan to pursue economic policies that will profit the U.S. itself," complained Fumihiko Igarashi, an opposition lawmaker, although he agrees that Japan needs structural reform.

But now the Americans have a new ally: the markets. Many clearly hope--as do reform-minded Japanese--that the unseen hand of the international and domestic investors who have been giving Japanese stocks and yen a drubbing will succeed where gaiatsu failed.

For example, Moody's Investors Service released a report Wednesday citing "the inability of the Japanese government to initiate structural reforms" and warning that "the economic and financial problems of Japan have begun to resemble conditions found in other advanced industrial countries not carrying Moody's highest rating, Aaa, as Japan has carried for many years."

The implicit threat to downgrade its credit rating could cost Japan dearly--and galvanize the government to action as no amount of American nagging could.

Still, many foreign and Japanese analysts harbor grave doubts that rich, conservative, stable Japan can be forced into making drastic change--despite seven years of feeble growth, record bankruptcies and a dangerously debt-ridden banking sector.

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