US Economists Fidget over Japanese Slump Analysts Assess the Possible Effects of Japan's Economic Slump on Tokyo's Trading Partners

By Amy Kaslow, writer of The Christian Science Monitor | The Christian Science Monitor, April 16, 1992 | Go to article overview

US Economists Fidget over Japanese Slump Analysts Assess the Possible Effects of Japan's Economic Slump on Tokyo's Trading Partners


Amy Kaslow, writer of The Christian Science Monitor, The Christian Science Monitor


AMERICAN perceptions of Japan's economic power have given way to concerns that the Asian nation's current financial problems will hurt the United States, now struggling out of recession.

Tokyo's plunging stock market, business bankruptcies, and falling bank and real estate assets have clipped Japan's aggressive investments and its ability to lend. Economists are assessing the impact of that downturn on the US finance, real estate, and manufacturing sectors, for which Japanese money has been vitally important.

Japan is experiencing its own credit squeeze, as banks grapple with falling stock values and higher capital requirements. With less money around to borrow, Japanese business is more inclined to bring earnings home rather than send them abroad. The recent severe slump of the Nikkei stock index, though startling to some observers, has only accelerated a Japanese retrenchment from activity in the US that began in 1990.

Economist Maria Ramirez, president of New York-based Maria Ramirez Capital Consultants, says Japanese banks will continue to shrink, dampening growth in the US and other countries that rely on borrowing for expansion.

The US government has relied heavily on Japanese firms to buy its debt, including Treasury bills, government bonds, and other securities. The Japanese are second to the British as the leading foreign lender to Uncle Sam. Last year, Japan held 1.4 percent of the $3.7 trillion US public debt, compared with 2.1 percent in 1990 and 2.9 percent in 1989. Japan is bound to continue this downward trend in 1992, according to Treasury Department spokesman Scott Dykema.

With US interest rates at their lowest levels since the 1970s, Japanese investors who do venture out of their domestic market will likely make their short-term investments in Canada, Europe, and Latin America, where higher rates promise a better return on their money. Ms. Ramirez says US investors who are disappointed with continued interest-rate reductions on US bank deposits and money markets will largely fill in the vacuum left by the Japanese. American investors are flocking to US government securities.

Japan is also far less bullish on US real estate, in which many high-profile Japanese investors have been burned by purchasing commercial real estate at inflated prices in a flat market. From 1987 through 1991, Japan spent $80 billion in the US real estate industry, roughly half of it on investments and half in loans. New Japanese investment fell to just $5 billion in 1991, a 61 percent drop from 1990.

California, which appeared to be leading the nation's real estate recovery, has suffered a setback as important Japanese lenders have tightened their reins.

Stephen Finn, a managing partner with Kenneth Leventhal & Co. …

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